CDSL channel breakout sparks optimism, stock surges 4%

“Central Depository Services (India) Ltd shares have gained 4 percent, reaching Rs 2038 at 12:18 pm on February 8. Yesterday, the stock broke out of a descending channel on the daily scale. This breakout was accompanied by a significant surge in trading volume, nearly six times the 50-day average volume.

According to Sudeep Shah, Head of Derivative and Technical Research at SBI Securities, “After hitting a low of Rs 1262 in October 2023, Central Depository Services (India) Ltd’s stock witnessed a rapid uptrend, soaring by around 57 percent in just 34 trading sessions, peaking at Rs 1,987 on December 14, 2023. Subsequently, it entered a consolidation phase. Notably, during this consolidation period, trading volumes remained predominantly below average, indicating a typical retracement following the robust upward movement. Throughout the consolidation phase, the stock maintained its trajectory within a descending channel.”

Technical chart of CDSL showing channel breakout| Source: SBI Securities

“The consolidation was halted near the 38.2 percent Fibonacci retracement level of its prior upward rally (Rs 1,262-1,987). On Wednesday, the stock gave a breakout of a descending channel on the daily scale. This breakout was accompanied by a noteworthy surge in trading volume, reaching nearly six times of 50-day average volume,” added Shah.

Wednesday’s total volume of 59.68 lakh far exceeded the last 50-days average volume of 10.07 lakh. Furthermore, the stock exhibited a substantial bullish candle on the breakout day, further reinforcing the strength of this upward movement.

Currently, the stock is trading above its short and long-term moving averages. As per Shah, these averages are on a rising trajectory, and they are in the desired sequence. The daily Relative Strength Index (RSI) has surged above the 60 mark for the first time after 33 trading sessions. The stochastic is also suggesting bullish momentum as %K is above the %D. The daily Moving Average Convergence Divergence (MACD) histogram suggests a pickup in upside momentum.

These technical factors indicate strong bullish momentum in the stock. Hence, Shah recommends accumulating the stock in the zone of Rs 1,950-1,960 level with a stop loss of Rs 1,890. As per the measure rule of the channel pattern, the upside target is placed at 2,100, followed by 2,170 in the short term.

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