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Harmonic pattern in Bharti Airtel suggests buying opportunity

 Narnolia Financial Advisors recommend buying Bharti Airtel at around Rs 490 with a stop loss of Rs 455 for higher targets of Rs 550.

What is AB=CD Harmonic Pattern?

The AB=CD chart pattern is a popular and an easy to spot pattern. Chart patterns are the foundational building blocks of technical analysis. Patterns don't form randomly but are a result of supply and demand dynamics and decisions traders take in certain situations.

In this pattern, the A to B leg is the first price movement to start with. After a brief retracement from point B to point C, the pattern will complete the C to D leg, which is the same length as AB.

Simply, after the AB and BC legs have been established; you project the AB length from point C. Although the price action will not always be exactly equivalent, the AB=CD legs usually will be close enough to determine the reversal points.

In AB=CD Pattern, the C point can retrace to either a 38.2 percent at a minimum to 88.6 percent to qualify it, whereas BC projection can be in a range of 1.13-2.618.

Why buy Bharti Airtel?

The AB=CD reversal pattern forms after a downtrend and its completion marks a trend reversal to uptrend. ABCD patterns are an integral part of technical analysis but successful traders combine these techniques with technical indicators and other forms of technical analysis to maximise their odds of success.

Bharti Airtel is correcting after making a high of Rs 600. However, the entire fall is in the form of ABC correction. This stock has a strong demand zone near Rs 480-490 levels. At the same time, it is progressing, though the harmonic AB=CD pattern and leg 'D' can conclude near the support levels mentioned.

Looking at Fibonacci retracement levels and anticipating a conclusion of 'D' leg, one can initiate long position for higher targets of 38.2 percent retracements.


Figure. AB=CD pattern and Buy signal on Bharti Airtel

Profit booking

As per the ABCD pattern, one should book around 38.2 percent retracement of AD leg and targets can extend towards 61.8 percent too. These levels are standing around Rs 530 and should provide immediate resistance on higher side, moving further Rs 555 will attract more profit bookings. So one can consider profit-booking near Rs 530 and higher side towards Rs 555.

Stop Loss

The entire bullish view negates on a breach of the immediate swing low and in a case of Bharti Airtel, we will consider Rs 450 as a stop loss level on a closing basis.

Conclusion

We recommend buying Bharti Airtel around Rs 490 with a stop loss of Rs 455 for higher targets of Rs 550 as indicated in the above chart.

(The author is Head - Technical Research at Narnolia Financial Advisors Ltd.)

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