ChennaiPetro: Wedge & Trendline BO with 61.8%, Chart of the Week

CHENNPETRO Explosive Breakout: Why This Refinery Stock Could Rally Another 30% After Its Q2 Turnaround. This PSU Refinery Stock Broke Through ₹979 Levels - Here's What Traders Need to Know About the Next Move. Let's Analyse in our Chart of the Week Below.

As per the Latest SEBI Mandate, this isn't a Trading/Investment RECOMMENDATION nor for Educational Purposes; it is just for Informational purposes only. The chart data used is 3 Months old, as Showing Live Chart Data is not allowed according to the New SEBI Mandate.

Disclaimer: "I am not a SEBI REGISTERED RESEARCH ANALYST AND INVESTMENT ADVISER."
This analysis is intended solely for informational purposes and should not be interpreted as financial advice. It is advisable to consult a qualified financial advisor or conduct thorough research before making investment decisions.

Price Action Analysis:

Trend Structure and Momentum:

- The stock experienced a prolonged uptrend from March 2023 to July 2024, rallying from base levels around ₹433 to a peak of ₹1,275, representing approximately 195% appreciation
- Post the July 2024 peak, the stock entered a corrective phase characterised by lower highs and consolidation
- Recent price action shows a breakout above the descending cyan trendline that had been capping rallies since mid-2024
- Current price of ₹979.35 (as of October 31, 2025) represents a 26.80% gain, indicating strong buying momentum
- The stock is trading above all key Fibonacci retracement levels, having reclaimed the 61.8% level at approximately ₹953

Candlestick Patterns and Formations:

- The most recent candle shows a strong bullish close with a substantial body, indicating conviction in the upward move
- The chart displays a rising wedge/descending channel pattern that was broken decisively in recent sessions
- Prior consolidation between ₹700-₹850 formed a re-accumulation base, which has now been breached to the upside
- The breakout candle demonstrates strong price and volume expansion, a classic sign of institutional participation

Volume Spread Analysis:

Volume Characteristics:

- Recent volume surge to 90.39 million shares significantly exceeds the average volume of 13.46 million, representing approximately 6.7x normal trading activity
- The volume spike coincides with the price breakout, validating the move as genuine rather than a false breakout
- Historical volume analysis shows similar spikes during major trend reversals, particularly during the March 2023 base breakout
- Volume expansion without corresponding price weakness suggests strong demand absorption at current levels

Volume-Price Relationship:

- The volume profile indicates heavy accumulation in the ₹700-₹800 zone, which now serves as a critical support cluster
- Recent sessions show sustained above-average volume, suggesting institutional interest rather than retail speculation
- The volume pattern aligns with a classic "breakout with expansion" scenario, increasing the probability of trend continuation

Support and Resistance Levels:

Key Support Zones:

- Primary Support (S1): ₹854 - This represents the 0.5 Fibonacci retracement level and previous consolidation high
- Secondary Support (S2): ₹754 - The 0.382 Fibonacci level and recent breakout point from the descending trendline
- Critical Support (S3): ₹631 - The 0.236 Fibonacci level and long-term base support at ₹433-₹450 zone
- The grey trendline originating from the 2024 lows provides dynamic support, currently positioned around ₹720

Key Resistance Zones:

- Immediate Resistance (R1): ₹1,094 - The 0.786 Fibonacci retracement level
- Major Resistance (R2): ₹1,275 - The all-time high achieved in July 2024 and psychological resistance
- Extended Resistance (R3): ₹1,400-₹1,500 - Projected based on measured move from the consolidation range

Technical Patterns and Indicators:

Chart Patterns:

- Descending Channel Breakout: The stock has successfully breached the cyan-colored descending trendline that acted as resistance since July 2024
- Rising Wedge Resolution: The consolidation pattern between August and October 2025 has resolved to the upside
- Base-on-Base Formation: The ₹433 level established in early 2024 served as the foundation for the subsequent rally, demonstrating strong long-term base support
- Cup and Handle (Potential): If the stock consolidates between ₹950-₹1,050 and then breaks out, it could form a cup and handle pattern projecting toward ₹1,400+

Fibonacci Analysis:

- The 61.8% Fibonacci retracement at ₹953 has been convincingly reclaimed, suggesting the corrective phase may be complete
- Golden ratio support held perfectly during the September-October consolidation
- The next Fibonacci target at 0.786 (₹1,094) represents the immediate upside objective
- Fibonacci extension levels project Upmove at ₹1,350 (1.272 extension) and ₹1,500 (1.618 extension) if the rally extends

Risk Factors and Invalidation Levels:

- A close below ₹920 would signal a potential false breakout
- Sustained trading below ₹850 would invalidate the bullish setup and suggest resumption of the downtrend
- Weekly close below the broken trendline (currently around ₹940) would be a bearish reversal signal
- Failure to maintain above 61.8% Fibonacci retracement could trigger another corrective leg

Fundamental and Sectoral Backdrop:

Company Fundamentals:

- Chennai Petroleum Corporation (CPCL) reported Q2 FY26 revenue of ₹16,327 crore with profit after tax of ₹719 crore
- The company achieved a crude throughput of 3.013 million metric tonnes (MMT) with a Gross Refining Margin (GRM) of $9.04 per barrel in Q2 FY26
- However, Q1 FY26 saw challenges with a net loss of ₹40 crore compared to a profit of ₹357 crore in Q1 FY25, primarily due to inventory losses and lower GRM of $3.22 per barrel
- For H1 FY26, CPCL recorded net profit of ₹689.68 crore versus a net loss of ₹294.45 crore in H1 FY25, with average GRM at $6.17 per barrel
- The company achieved a record crude throughput of 11.642 MMT with 111% capacity utilisation

Business Operations and Product Portfolio:

- CPCL is engaged in refining crude oil to produce various petroleum products, including LPG, Motor Spirit, Kerosene, Aviation Turbine Fuel, High Speed Diesel, Naphtha, Fuel Oil, and Bitumen
- The company also produces speciality products like Paraffin Wax, Mineral Turpentine Oil, Hexane, and Petrochemical feedstocks
- Most fuel products are marketed by the parent company, Indian Oil Corporation (IOC), while CPCL directly markets speciality products
- In 2024, CPCL commissioned new infrastructure, including Pharma Grade Hexane production and Sustainable Aviation Fuel

Financial Metrics and Valuation:

- Market capitalisation stands at approximately ₹14,584 crore, with the company maintaining a healthy dividend payout of 35%
- CPCL has demonstrated strong return on equity with a 3-year ROE of 31% and has reduced debt levels
- Current price-to-earnings and other valuation metrics suggest the stock is reasonably valued considering sectoral challenges

Sector Outlook and Industry Trends:

- India's refining capacity increased to 258.1 MMTPA as of FY25, with domestic consumption at 239.2 MMTPA
- India is expected to drive global oil demand growth, with consumption projected at 5.74 million barrels per day in 2025 and 5.99 million bpd in 2026
- The country plans to expand refining capacity to 309.5 MMTPA by 2028
- Refinery output has been strong, with manufacturing IIP for refined petroleum products rising 4.24% in June 2025, driven by auto-fuel demand growth of 7.9% year-on-year
- However, refining margins are expected to fall below mid-cycle levels in FY25, indicating potential profitability challenges

Opportunities and Challenges:

Opportunities:
- Downstream activities driven by refinery-petrochemical integration are projected to post the highest 5.2% CAGR through 2030
- Growing domestic demand for petroleum products with urbanisation and economic growth
- Government initiatives supporting energy infrastructure development
- Indian refiners have benefited from processing discounted Russian crude, generating significant margins

Challenges:
- Net profit declined for the last two quarters, with an average decrease of 108.5% per quarter, and revenue fell 14.1% per quarter
- Volatile crude oil prices and fluctuating gross refining margins
- India's domestic crude oil production has fallen 26.3% and natural gas by 24.1% during FY12-FY25, leading to increased import dependency
- Environmental regulations and pressure to transition toward cleaner energy
- Institutional investment in CPCL decreased by 37.83% over the past 30 days

Competitive Position:

- CPCL is a subsidiary of Indian Oil Corporation, providing strategic advantages in product marketing and distribution
- The company competes with major refiners, including Reliance Industries, Bharat Petroleum, Hindustan Petroleum, and Mangalore Refinery
- CPCL's core vision is to be the most admired Indian energy company, creating value through world-class performance and ethical governance
- The company's location in South India provides strategic advantages for serving the region's growing energy needs

Fundamental Risks:

- The stock trades at reasonable valuations with potential upside to fair value estimates around ₹1,050
- Strong Q2 performance suggests earnings momentum is improving after a weak Q1
- Sectoral tailwinds from growing domestic demand support medium-term prospects
- Key risks include GRM volatility, crude price fluctuations, and regulatory changes

My 2 Cents:

- CPCL presents a compelling technical setup following the breakout from a multi-month consolidation pattern
- The combination of volume expansion, Fibonacci support, and trendline breach suggests potential for further upside
- Risk management is critical given sectoral volatility; strict adherence to stop losses is recommended

Full Coverage on my Newsletter this Week

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As per the Latest SEBI Mandate, this isn't a Trading/Investment RECOMMENDATION nor for Educational Purposes; it is just for Informational purposes only. The chart data used is 3 Months old, as Showing Live Chart Data is not allowed according to the New SEBI Mandate.

Disclaimer: "I am not a SEBI REGISTERED RESEARCH ANALYST AND INVESTMENT ADVISER."
This analysis is intended solely for informational purposes and should not be interpreted as financial advice. It is advisable to consult a qualified financial advisor or conduct thorough research before making investment decisions.