Indigo Paints - Great Setup Before a Big Reversal?
The stock has experienced a significant correction since February 2021, with a decline of nearly 70% from its peak. Notably, I observed an inverted head and shoulders pattern, recognized as a powerful indicator of a potential bottom. This observation led me to conduct a comprehensive technical analysis utilizing Elliott Wave theory.
Upon analyzing the correction from the peak, an ABC pattern in a zigzag formation becomes evident. Wave A manifested as an impulse consisting of five sub-waves, while wave B exhibited a flat correction comprising three minor waves. Wave C, once again, presented as an impulse with five minor sub-waves. The aforementioned waves adhered to the fundamental principles of Fibonacci analysis in Elliot waves. Remarkably, wave C projected at 1.618 times the length of wave A, a common characteristic of a deep zigzag correction.
Following the conclusion of wave C, the subsequent wave has surged sharply, indicative of the characteristics associated with wave 3 in an impulse sequence. Although this movement may have been a false signal, the nature of the retracement is particularly noteworthy. It has remained relatively flat in comparison to the preceding upward movement and coincidentally found support at the 61.8% Fibonacci level, which is typically a standard support for wave 2, before rebounding with a substantial bullish candle.
For a detailed explanation on Elliot waves basics, please refer to the following link:https://www.investopedia.com/terms/e/elliottwavetheory.asp
Integrating the insights from the analysis, it appears that a bottom may have been established, suggesting the potential for a stock rally from this point onward.
In terms of trading strategy, it is advisable to await a breakout above the 1600 level, accompanied by a weekly close above this threshold. When considering position building, a phased approach is recommended, involving gradual purchases on dips to incrementally increase the position size.
The wave counts and relevant levels are illustrated on the accompanying chart.
DISCLAIMER: It is important to note that the information provided in this analysis is intended solely for educational purposes. It is strongly advised to consult with a financial advisor prior to making any investment decisions. I cannot be held responsible for any financial losses that may occur.
Upon analyzing the correction from the peak, an ABC pattern in a zigzag formation becomes evident. Wave A manifested as an impulse consisting of five sub-waves, while wave B exhibited a flat correction comprising three minor waves. Wave C, once again, presented as an impulse with five minor sub-waves. The aforementioned waves adhered to the fundamental principles of Fibonacci analysis in Elliot waves. Remarkably, wave C projected at 1.618 times the length of wave A, a common characteristic of a deep zigzag correction.
Following the conclusion of wave C, the subsequent wave has surged sharply, indicative of the characteristics associated with wave 3 in an impulse sequence. Although this movement may have been a false signal, the nature of the retracement is particularly noteworthy. It has remained relatively flat in comparison to the preceding upward movement and coincidentally found support at the 61.8% Fibonacci level, which is typically a standard support for wave 2, before rebounding with a substantial bullish candle.
For a detailed explanation on Elliot waves basics, please refer to the following link:https://www.investopedia.com/terms/e/elliottwavetheory.asp
Integrating the insights from the analysis, it appears that a bottom may have been established, suggesting the potential for a stock rally from this point onward.
In terms of trading strategy, it is advisable to await a breakout above the 1600 level, accompanied by a weekly close above this threshold. When considering position building, a phased approach is recommended, involving gradual purchases on dips to incrementally increase the position size.
The wave counts and relevant levels are illustrated on the accompanying chart.
DISCLAIMER: It is important to note that the information provided in this analysis is intended solely for educational purposes. It is strongly advised to consult with a financial advisor prior to making any investment decisions. I cannot be held responsible for any financial losses that may occur.
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