In this article, we analyze the weekly charts of Zomato, Dixon Technologies, and Vedanta, where the technical indicators are signaling a strong possibility of price correction. Specifically, we are observing a bearish signal with Stochastics above 90 and RSI showing a negative divergence. This combination is a warning sign for traders and investors to take caution as the price is likely to correct.
Understanding the Negative Divergence
Negative divergence occurs when the price of a stock is moving upward while the Relative Strength Index (RSI) is declining. This indicates that the upward momentum is weakening despite rising prices, often signaling an upcoming correction. Coupled with Stochastics above 90, which reflects overbought conditions, the chances of a reversal become even stronger.
When both indicators align in this way:
- Price up, RSI down: Weakening momentum and investor caution.
- Stochastics above 90: Overbought levels, increasing the likelihood of a correction.
This combination makes a strong case for initiating a sell call to book profits or avoid potential losses.
Technical Analysis on Key Stocks
1. Zomato
- Current Setup:
- Price is moving upward, but RSI is trending downward (negative divergence).
- Stochastics: Above 90 (overbought zone).
- Analysis: This indicates that buying momentum is weakening, and sellers may soon take control. Traders should consider exiting positions to lock in profits.
- Outlook: Expect a short-term price correction toward key support levels at Rs 260 – 240.
2. Dixon Technologies
- Current Setup:
- Price is rising steadily, but the RSI is showing a downward trend.
- Stochastics: Above 90, signaling overbought conditions.
- Analysis: Dixon’s chart reflects a classic case of negative divergence, where the rally lacks strong momentum. This setup is often followed by a price pullback.
- Outlook: Price may correct toward Rs 16,000 – 15,000 support levels in the coming weeks.
3. Vedanta
- Current Setup:
- Price continues to rise while RSI declines, signaling negative divergence.
- Stochastics: Above 90, confirming overbought conditions.
- Analysis: Vedanta is showing clear signs of a weak upward move, with sellers likely to take over soon. This is a strong bearish signal.
- Outlook: A correction toward Rs 460 – 450 is expected in the near term.
Why This Negative Divergence Matters
The negative divergence between price and RSI is a reliable indicator for identifying weakening momentum. When combined with Stochastics above 90, it becomes a strong signal that the stock is overbought, and a correction is imminent. Here’s why:
- Momentum Loss: Rising prices with falling RSI reflect weakening buying interest.
- Overbought Levels: Stochastics above 90 confirm that the stock has entered an extreme zone where corrections are common.
- Historical Patterns: Similar patterns have historically led to sharp price declines as traders book profits.
Conclusion: Sell Call for Zomato, Dixon, and Vedanta
Given the technical setup of negative divergence on RSI and Stochastics above 90, Zomato, Dixon Technologies, and Vedanta are showing strong signals for a price correction. Traders and short-term investors should consider booking profits or avoiding fresh entries at current levels.
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