CEAT Shares Signal Near-Term Weakness; Check The Pattern And Details

Synopsis: CEAT Ltd has formed a rectangular channel pattern on the 2-hour chart, with a downside breakout indicating a bearish bias. 

CEAT Ltd, after a phase of sideways consolidation in recent sessions, has formed a rectangular channel pattern on its 2-hour chart, with a downside breakout indicating a potential bearish continuation.

The rectangular channel pattern represents a consolidation phase where price oscillates between parallel support and resistance levels. A decisive breakdown below the lower boundary signals a bearish continuation, indicating that sellers have gained control, and downside momentum may accelerate.

On Wednesday, the stock formed a lower high within the rectangular consolidation channel, before decisively breaking below the key support level of Rs 3,659 on Wednesday. The breakdown, coupled with subdued buying volumes, signals the emergence of near-term bearish momentum.

For a rectangular channel pattern, the downside target is calculated by measuring the height of the consolidation range and projecting that distance downward from the breakdown point. Traders typically use this projection to set profit targets, often booking partial or full gains near the target while reassessing positions as prices approach potential support zones.

(2-Hour Timeframe)

Indicator Confirmation

RSI: The daily RSI indicates persistent bearish momentum, as it declined from ~44 in the previous trading session to 37 on Wednesday, confirming the continuation of the downtrend.

MACD: The orange signal line crossed above the Blue MACD line, with the histogram turning red, indicating bearish momentum.

Moving Averages: On the 2-hour time frame, the 5-day moving average has crossed below the 9-day moving average, further confirming a bearish trend.

Price Volume Trend: The Price Volume Indicator confirmed the downtrend, supported by a sharp decline in buying volumes.

Implications

The breakdown from the bearish rectangular channel indicates scope for further downside. A sustained close below the key Rs 3,659 support, preferably accompanied by increased selling volume, would confirm the validity of the breakdown and reduce the risk of a false signal. The former support around Rs 3,659 has now turned into immediate resistance, and continued trading below this level would reinforce bearish control in the near term.

About the stock

CEAT Limited is a leading Indian tyre manufacturer and the first in its industry to receive the Deming Grand Prize. The company maintains an extensive network of over 61,000 touchpoints and partners with more than 50 original equipment manufacturers. Driven by innovation, it has filed 201 patents. 

Over the past month, CEAT Ltd has declined by 9.84%, reflecting a phase of prolonged sideways consolidation. The stock is down 1.52% over the last six months and has registered a 19.80% gain over the past year. For more such technical stock ideas, Click here to view our research page.

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