Mastek- Cup and Handle Pattern

12 Nov

Mastek Ltd. 3099- Cup and Handle Pattern


1. Pattern Analysis
Pattern Name: Cup and Handle Pattern
Timeframe: 2.5 years
Description: The Cup and Handle pattern consists of a rounded bottom (the "cup") followed by a smaller consolidation phase (the "handle"). This pattern represents a long accumulation period where selling pressure gradually weakens, leading to a breakout as buyers take control. In this case, the cup has formed over the past 2 years, followed by a handle that completed over several months. The breakout above ₹3,000, which marks the resistance level, confirms the pattern.

2. Volume Analysis
Volume Behavior: During the cup formation, volume gradually declined, indicating diminishing selling interest. As the handle formed, volume further reduced, showing consolidation and the potential for a breakout.
Current Volume: A significant volume increase accompanied the breakout above ₹3,000, confirming the bullish signal. Rising volume on breakout from a Cup and Handle pattern is a positive sign, as it indicates strong buying interest and supports the breakout’s legitimacy.

3. Price Action and Candlestick Analysis
Candlestick Patterns: The breakout candle was a strong bullish candlestick, closing above the resistance level of ₹3,000. The closing near the weekly high signifies buying pressure and the potential for a sustained move. This bullish candlestick further validates the breakout from the Cup and Handle pattern.

4. Validation of Bullish Signal
Breakout Confirmation: The breakout above ₹3,000, backed by strong volume, confirms the bullish continuation signal for the Cup and Handle pattern. This breakout suggests the start of a new uptrend.
Key Levels:
Resistance Level: ₹3,000, the breakout level, which has now turned into support.
Next Target Levels: Calculated based on the height of the cup from the lowest point to the breakout level.

5. Entry Point Determination
Primary Entry: Near ₹3,000 on confirmation of the breakout above the handle’s resistance. This level has already shown strength as the stock broke out with high volume.
Alternative Entry: A potential retest of the ₹3,000 level could provide an additional entry opportunity. This conservative approach could help validate the level as support.

6. Target Setting
Pattern-Based Target Calculation: The target for a Cup and Handle breakout is typically measured by taking the depth of the cup and projecting it upward from the breakout point.
Cup Depth: The cup extends approximately from ₹1,800 to ₹3,000, giving a height of around ₹1,200.
Projected Target Price:
Primary Target: ₹3,000 + ₹1,200 = ₹4,200.
Interim Target Levels: Additional targets can be set for profit-taking at increments along the way to the full projection, such as ₹3,300 and ₹3,600.

7. Stop Loss Placement
Recommended Stop Loss: A stop loss should be placed just below the breakout level, around ₹2,900. This level serves as a buffer in case of a minor retracement, protecting against a potential false breakout.
Alternative Stop Loss: A more conservative stop could be set at ₹2,800, providing further room for fluctuations but still maintaining control over downside risk.