Technical Check: Double bottom reversal pattern seen in Can Fin Homes; stock could retest 52-week highs

Can Fin Homes Ltd underperformed benchmark indices in the last one year but recent price action suggests that the bulls are back. The momentum seen in the stock could push it towards a fresh 52-week high in the next 6-9 months.

The housing finance company rose 12 percent in the last one year compared to about 20 percent upside seen in the Nifty50 in the same period.

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The stock with a market capitalization of more than Rs 8000 cr hit a 52-week high of Rs 721.25 on 18 October 2021 and since then the trend went sideways.

Can Fin Homes is a mid-sized, niche player in the housing finance space, with better balance in growth, profitability, asset quality, and return ratios.

The company’s strong fundamentals are supported by its presence in low-risk housing loans with a majority of the borrowers being salaried individuals (73% of the total portfolio), and negligible exposure to developer loans (0.02% of the total portfolio) as well as high-ticket-size LAPs.

The stock fell more than 28 per cent after hitting a 52-week high. It finally took support near Rs 518 on 20 December 2021 before bouncing back.

The momentum took the stock towards Rs 669 on 2 February 2022 before bears took over and pushed the stock towards its previous support. Can Fin Homes took support near Rs 520 on 7 March 2022 before seeing a turnaround.

The recent price structure suggests that the stock formed a double bottom reversal pattern and a confirmation will come when the price breach Rs 670 on the upside, suggest experts.

A double bottom pattern is formed when a stock retests its previous support level twice in a given time frame on the daily charts. The pattern looks like a ‘W’. It signifies a change in trend and a momentum reversal.

Can Fin Homes rose more than 7 percent in a week, and nearly 16 percent in a month, data from Trendlyne showed.

The stock price hit an all-time high of 722 in October last year with high volumes on up move. It then declined to touch a low of 518 on low volumes indicating a corrective decline.

“After bouncing back to 670 odd levels in February, stock retraced back to test low of 518. It is now rallying back to form a double bottom reversal pattern on the daily chart,” Ashish Chaturmohta, Director, Equity Research, Sanctum Wealth, said.

“Confirmation of the pattern will come when the price crosses above 670 levels and trades above it on a sustainable basis to give breakout from the pattern,” he added.

Chaturmohta said that the stock can be bought at current levels and on dips to 630 with stop loss of 595 for target of 750-780 in the coming 6 to 9 months.

(Disclaimer: The views/suggestions/advice 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.)