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| Castrol India Daily Chart (Chart source: Tradingview) |
Castrol India seems to have completed the D leg of a bullish Gartley pattern, as has been highlighted in the chart above. A bullish Gartley pattern is a bullish reversal pattern that is based on various fibonacci ratios and one which marks the end of a price decline.
By definition, the AB leg is approximately 0.618 of the XA leg, the BC leg varies between 0.382 and 0.886 of the AB leg, the CD leg varies between 1.27 and 1.618 of the BC leg, and the AD leg is approximately 0.786 of the XA leg. Point D is the infliction point as it is around this point, where price is expected to find a bottom and potentially reverse to the upside.
By definition, the AB leg is approximately 0.618 of the XA leg, the BC leg varies between 0.382 and 0.886 of the AB leg, the CD leg varies between 1.27 and 1.618 of the BC leg, and the AD leg is approximately 0.786 of the XA leg. Point D is the infliction point as it is around this point, where price is expected to find a bottom and potentially reverse to the upside.
As can be seen in the chart above, the decline from Point A to Point D is approximately 0.786 of the XA leg. The downtrend has taken pause near this key fibonacci ratio over the past three sessions, increasing my belief that the stock may be seeking to find a bottom around this level. Meanwhile, the daily stochastic has ventured into oversold region and has started to form a bullish divergence with price over the past couple of weeks as the lower low in price has been accompanied by a higher low in stochastic. Also, volume during the recent price decline has been quite subdued as compared to volume seen during prior price decline, suggesting that the selling pressure is reducing.
On Friday, the stock formed a harami candle pattern (inside bar in western parlance) and yesterday, price moved above the high of Friday (188.50). If price sustains above this high and if this is also accompanied by a pick up in volume, it will be a sign of accumulation and potential reversal in trend from down to up. In such a case, price can be expected to head higher possibly towards 215 (previous high) and 225 (downward sloping resistance line connecting Dec'14 high and Oct'16 high). On the flip side, the bullish implications of the harmonic pattern would be negated if the stock pierces below its preceding low of 176.
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