Breakout candidate: Lemon Tree Hotels

Lemon Tree Hotels operates a chain of upscale business and leisure hotels. The stock rallied a staggering 35% from March 22, 2022 lows to a high of Rs 71.25 made on March 30, 2022.

After a robust rally of 35% in just six trading sessions, Lemon Tree Hotels entered into the profit booking phase and interestingly, during this profit booking phase volume was pretty thin and, on some days, it was below average. Furthermore, the stock retraced above 50% of its up-move from March 22 to March 30.

Currently, the stock is on verge of witnessing a breakout of basing pattern. This basing pattern is about 11-days long and it has a depth of nearly 12.94%. Going ahead, if the stock manages to sustain above the level of Rs 71.25-71.50, it would result in a breakout of this basing pattern and can witness a swift move of 10-12% in the near term.

The stock is trading above all the short- and long-term moving averages. The stock is trading above 20, 50, 100 and 200-DMA and all of them are trending up. At the same time, there is a desired sequence.

The leading indicator of 14-period daily RSI is in a super bullish zone and has given a bullish crossover on Tuesday. The daily MACD is seen sustaining above its nine periods average thus validating positive bias in the stock. The MACD histogram is suggesting a pick-up in upside momentum. The stock is clearly uptrend and the trend strength is extremely high. The Average Directional Index (ADX), which shows trend strength, is as high as 40.96 on a daily chart. Generally, above 25 levels is considered a strong trend. Furthermore, the +DMI is much above the -DMI line and it is pointing northwards.

Based on the above observations, we expect that the stock would witness a breakout of this basing pattern and test level of Rs 77-79 in the short to medium term. While on the downside, level of Rs 66 is likely to act as strong support.

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