Sarla Performance Fibers – Losing its shininess

Sarla Performance Fibers – Losing its shininess

Sarla Performance Fibers stock is all set to lose its shininess with the formation of head and shoulders pattern in the weekly chart

The stock had a stellar run from the year 2009 to the beginning of 2016 growing up by 45X times

The stock made all time highs during Jan’16 but with low volumes and the hammer formation at the top suggested the weakness in the stock which eventually could be witnessed when the stock has given up 50% of its value in less than a month when the Q3 results were out

The sudden fall in price coupled with heavy volumes (the volume levels which the stock hasn’t seen in the last 5 years) indicates something not well with the stock and the same is conspicuous from the financial results

The sharp fall was contained at Rs.48 which coincides with the level where the stock found an interim support before making all-time highs

The stock tried to recover along with overall improvements in the market conditions and managed to gain up by 20% but the important thing to note here is the decline in the volumes – yes the stock gained momentum with the lack of volumes which once again indicates the weakness in the demand & buying pressure

After reaching Rs.70 levels, the stock once again plummeted 20% in less than two weeks with surge in volumes

Here’s the interesting pattern emerged in chart analysis

  • First, the strong upside momentum (that persisted for years) took the stock up to Rs 70
  • The stock level corrected and found support at 48 Rs
  • Once again the stock resumed the upside but with lower volumes and reached up to 90 Rs
  • The stock fell up to 48 Rs (where it found support earlier) coupled with heavy volumes
  • The stock resumed the upside move with visibly lower volumes and re-attempted to overcome the 70 Rs but failed
  • The stock falling back with heavier volumes to 48Rs levels

The above mentioned pattern suggest none other than the formation of popular Head and Shoulders pattern with the neckline at 48 Rs

Sarla Performance Fibers Weekly Chart

What happens if the neckline is pierced?

If the neckline at Rs 48 is pierced, the stock may fall up to Rs. 16 according to the calculation of minimum target of H & S pattern

The minimum target is calculated by taking the difference of height of the head (Rs.80) and the neckline of the H&S (Rs 48) and subtracting the value from the neckline line

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