Investing is about finding something before everyone else does. While a lot of investors buy stocks after they have rallied, experienced market players know that some of the best opportunities come during healthy corrections within a long-term uptrend.

One of the most trusted combinations for such opportunities is when a fundamentally strong stock finds support near the 50-month Exponential Moving Average (EMA) and the Relative Strength Index (RSI) trades in the 40-50 zone on the monthly chart.

This arrangement is strength, not weakness. It can often be an indication that the long-term trend remains intact despite short-term profit booking.

This is exactly the technical picture seen in recent charts of Cholamandalam Financial Holdings Ltd. and Bajaj Finserv Ltd. 

A Demand Zone For The Long Run

The 50-month EMA is a dynamic support level during major bull markets. The monthly 50 EMA shows the overall market trend and institutional participation, unlike short-term moving averages that react quickly to price changes. And when quality stocks retest this average after a long rally, it’s usually a sign of long-term investors adding to, not selling out of, their positions.

Many investors often consider RSI below 30 to be an attractive buying opportunity. This will work in sideways or declining markets but not in strong secular bull trends. Monthly RSI rarely goes into the oversold zone in strong uptrends. Instead, it finds support at between 40 and 50. Momentum eases off without damaging the primary trend.

Cholamandalam Financial Holdings: Demand Coming Back Near Long Term Support

Cholamandalam Financial Holdings witnessed a healthy correction after a strong multi-year rally.

Source: Tradingview

There are several encouraging observations technically:

  • Stock is trading near the rising 50-month EMA
  • The moving average continues to climb higher, confirming the primary trend is still positive
  • RSI monthly has recovered into the 40-50 demand zone
  • The correction seems to be fading, rather than accelerating

This combination hints that demand may be developing at current levels for the long haul.

The stock appears to be consolidating after a long advance, rather than exhibiting structural weakness.

Should the buying interest persist around this support, the stock could potentially recommence its primary uptrend in the months ahead.

This setup is worth paying close attention to for medium to long-term investors.

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Bajaj Finserv: A Proven Trend Finding its Support Again

Bajaj Finserv has respected its wider trend structure and rewarded long term investors for more than a decade. The stock has rebounded and remained on its long-term bullish trend, albeit with periods of significant volatility.

The technical picture for the moment again looks constructive.

Source: Tradingview

The technical structure to note are:

  • The stock is hovering around the 50 month EMA.
  • The long-term moving average is still pointed upwards
  • Monthly RSI has cooled to the 40-50 range
  • Selling pressure appears significantly lower than in previous corrections

This suggests the stock is entering a zone that has historically attracted the interest of long-term investors.

If it sustains above the support zone, Bajaj Finserv may probably witness fresh buying interest from institutions and inch towards higher levels.

An Actionable Strategy for Investors

In general, rather than making one large investment, investors may want to consider a disciplined accumulation approach.

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A practical framework might include:

  • Price should continue to respect the 50-month EMA.
  • Look for the monthly RSI to stay above 40 and move higher gradually.
  • Get into position in phases, not all at once.

Add exposure if the stock shows strength, moving above recent swing highs with improving momentum. This gives investors a probable opportunity to make a profit, and to better manage their risk.

Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.

Brijesh Bhatia is an Independent Research Analyst and is engaged in offering research and recommendation services with SEBI RA Number – INH000022075. He has two decades of experience in India’s financial markets as a trader and technical analyst.

Disclosure: The writer and his dependents do not hold the stocks discussed here. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein.  The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors.  Investors must make their own investment decisions based on their specific objectives and resources, and only after consulting such independent advisors if necessary.