Indian Hotels’ negative divergence in RSI signals near-term bearishness

Shares of Indian Hotels traded down 9.00 points or 1.49 percent to Rs 596.10 around 1:07pm on April 9 following the weakness in momentum captured after a sharp spike seen in the counter a day before.

Technical analysts point out a negative divergence in RSI, coupled with continuous selling over the last three days, suggesting bearishness for the near term.

Technical chart showing sharp spike in Indian Hotels counter on April 8 around noon

Over the past six months, the Indian Hotels stock has gained 43 percent, but in the last five days, it has fallen approximately 2 percent.

Here’s how technical experts are positioning the stock:

Consolidation likely after outperformance

“Indian Hotels have been on a bullish run for the past few months and may enter consolidation mode after the recent outperformance. The overall trend appears bullish for the long term, and any dip towards 560-570 will be the first zone to accumulate the counter. The key support for the stock is around 550, while the next resistance is around 640 on the higher side,” said Arun Kumar Mantri, founder of Mantri Finmart.

Long-term investors may hold and add on declines

Considering the data, Mantri suggests that long-term investors may continue to hold the stock and add to their portfolios on any major decline towards 550-570 within the next 9-12 months. The targeted levels will be around 640 and 710.

Technical chart showing RSI in negative divergence| Source: Prabhudas Lilladher

Negative divergence in RSI indicates bearishness

According to Rupak De, senior technical analyst at LKP Securities, the stock has formed a higher top on the daily timeframe, but the momentum indicator RSI has diverged by forming a lower top. “This negative divergence in RSI, coupled with continuous selling over the last three days, suggests bearishness for the near term. However, the stock has support at 585, and until it falls below this level, the chances of a significant correction appear slim. On the higher end, resistance is seen at 610; above this level, the stock might regain its strength.”

According to Vaishali Parekh, vice-president of technical research at Prabhudas Lilladher, the stock has indicated a negative divergence on the daily chart with the RSI slipping down with a negative trend reversal pattern. “The stock has witnessed some profit-booking and is expected to slide till the 555-545 zone, which is near the significant 50-day EMA level. Our view shall be negated once a decisive breach above 625 is confirmed, where the bias shall turn positive overall.”

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