The defence sector has been one of the most closely watched pockets of the Indian market, but the more interesting story may not always be in headlines or order-book announcements. Sometimes the chart speaks first.
Currently, four defence names, Apollo Micro Systems, Data Patterns, Dynamatic Technologies and Hindustan Aeronautics (HAL) are displaying technical structures which need to be watched.
Here is what the charts are telling us.
1. Apollo Micro Systems: Breakaway From Major Base
Apollo Micro Systems has been a good example of how long consolidation can finally lead to a strong trend.
The weekly chart shows a base, then breakout and continuation sequence. The stock had earlier consolidated for quite some time in the Rs.100-Rs.160 region. After breaking the major resistance zone around Rs.160, the character of the chart changed. The old resistance finally started to behave like a support zone.
Join now
Following this, the stock slipped to the Rs.300-plus zone, before moving into another consolidation mode. Interestingly, the latest chart shows prices breaking above the previous swing resistance zone around Rs.320-Rs.330 and then moving toward the Rs.400 mark.
Apollo Micro Systems is trading around Rs.403.85 on the chart.
What’s important to notice is not just that the stock has gone up. It is that the weekly structure is still making higher highs and higher lows.
For traders, the old breakout zone becomes important. If the stock can stay above this area, we could see the current consolidation working as a continuation pattern.
A sustained break above the recent high could be a sign of a likely continuation of the bigger uptrend. The zone of Rs.380-400 may act as probable demand zone.
2. Data Patterns: The breakout and Rally
The stock price of Data Patterns has found resistance around Rs.3,656, which was clearly marked on the weekly chart. In the previous attempt, the price managed to reach this zone, but couldn’t hold above it and corrected sharply afterward.
The price has broken above Rs.3,656 and importantly, the chart shows the stock spending time around the breakout zone before moving higher. This is important because technically, a breakout is more interesting when the market has the opportunity to retest the old resistance as support.
The current price is around Rs.4,380.70, well above the resistance level marked. The candles after the breakout show good participation, but the stock has also become a bit volatile near its recent highs. That means the risk of short-term profit-taking can’t be ignored.
The key area to look out for traders would be the previous breakout zone of around Rs.3,656. Holding above this would probably keep the larger bullish structure intact.
A decisive move above the recent swing high could open the door for another leg higher. The setup is therefore likely rather than certain and the distinction matters.
3. Dynamatic Technologies Ltd: Near Breakout Consolidation
Dynamatic Technologies stock price has been consolidating in a long accumulation phase and finally managed to breach the crucial Rs.9,097–Rs.10,022 resistance zone on the weekly chart. As the stock broke above these levels momentum gathered pace.
The stock then shot up sharply to the Rs.12,000-plus region before entering a consolidation phase.
What makes the current chart’s consolidation interesting is where it is.
Instead of giving back the entire breakout right away, price has held above the previous breakout zone. Thus, the noted demand zone around Rs.10,022 region is a key technical reference.
The recent candle shows renewed buying interest from the lower end of the consolidation and the latest price is around Rs.11,401. This sets up an interesting battle between momentum and consolidation.
If the stock holds above the Rs.10,000-Rs.10,200 zone, the larger bullish structure may be intact. A breakout above the recent consolidation high could probably indicate the start of another leg up.
So the strategy for traders should not be just “buy the dips” and manage risk, watch the demand zone instead.
4. HAL: The Bigger Pattern Might Be The Story
From a classical charting point of view, Hindustan Aeronautics is perhaps the most interesting.
On the weekly chart, an inverse head-and-shoulders type structure, with the left shoulder, deeper head and right shoulder visible across the price action. The falling trendline represents the neckline.
What’s interesting to note in this development is that price has now moved toward and above this neckline area, with the latest price being around Rs.4,910. This is the exact type of structure that technical traders watch closely.
An inverse head and shoulder typically only makes sense when a neckline breakout is confirmed. So the following candles could be more important than the breakout candle itself.
If HAL is above the neckline and the breakout zone becomes support, this pattern could probably trigger a larger bullish move.
The pattern probably triggers the bigger rally on the cards for the stocks for the next two-four quarters.
Four Charts, One Story
There is an interesting commonality among these four defence stocks. Apollo Micro Systems is emerging from a long-term pattern.
Data Patterns is exhibiting breakout and retest action.
Dynamatic Technologies is consolidating above a previous breakout and demand zone.
HAL is trying for a classic reversal pattern breakout.
That makes the group technically interesting, but also brings up an important trading lesson: the breakout is not the trade; the reaction after the breakout is the trade.
If a stock jumps through a resistance level and then stays above it, then it may be in a better setup than a stock that just surges through a resistance level for one day.
The defence theme may still be structurally interesting, but from a charting point of view these four stocks are trying to establish new territory after breaking technically significant levels.
Whether these breakouts will become sustained trends is yet to be seen. But on the basis of structures seen on the weekly charts alone, Apollo Micro Systems, Data Patterns, Dynamatic Technologies and HAL could be probable stocks to keep on the technical watchlist and not ignore.
Disclaimer:
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.