Technical Check: A Wolfe Wave pattern in this large cap underperformer makes it an attractive buy; here’s why

ITC Limited, which has underperformed Nifty50 so far in 2021 could see some value buying near crucial support levels. ITC rose a little over 4 per cent compared to over 23 per cent rally seen in the Nifty50 so far in 2021.

ITC with a market capitalization of more than Rs 2.6 lakh cr hit a 52-week high of Rs 265.30 on 18 October and since then, it witnessed heavy selling pressure which has dragged the stock towards Rs 200 levels.

It bounced back after hitting an intraday low of Rs 209.80 on 20 December. The stock recently surpassed its crucial 200-Days Moving Average placed at Rs 216 which is a positive sign for the bulls.

It is still trading below crucial short-term moving average placed near 30, 50 and 100-Days Moving Average. The stock recently formed a Wolfe Wave pattern which hints at an upside till Rs 252, which translates into a rally of about 15 per cent from Rs 219 recorded on 28 December, suggest experts.  

“ITC has been under pressure for quite some time but at this juncture its trading near its crucial support. Previously the stock turned from this level and we saw a rally towards 240,” Mehul Kothari, AVP – Technical Research, Anand Rathi Shares & Stock Brokers, said.

On the daily chart there is a bullish WOLFE WAVE pattern which is looking lucrative, Kothari further added. Thus, we advise traders to go long in the stock with a stop loss of 208, he said.

The Wolfe Wave is a pattern consisting of five waves showing supply and demand and a fight towards an equilibrium price. Wolfe Wave patterns were introduced an S&P500 index trader known as Bill Wolfe.

Wolfe Waves work a bit like the Elliot waves. For example, they get the 1-2-3-4-5 wave formations seen with Elliot waves and put them into a shape context that traders can trade as bullish or bearish.

“Wolfe Wave patterns can develop over short- and long-term time frames such as minutes or weeks. They are used by traders to predict where a price is heading and when it will get there,” says Kothari.

According to Bill Wolfe, the Wolfe Wave is a naturally occurring harmonic pattern that can be found in all financial charts, all of the time.

He further added that Bill Wolfe would be against the use of other indicators, as he suggests that the Wolfe Wave stands alone in its methodology. As mentioned earlier, the pattern can indicate either bullish or bearish trends as shown in the charts below.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)