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Dycom Industries Inc (Symbol: DY) operates in the Industrial (Construction/Real Estate) space. Throughout the United States, it provides contract-based services in the areas of engineering, construction, maintenance, and installation services to telecommunications providers, underground facility locating services to various utilities, including other construction and maintenance services to electric and gas utilities, and others. 

The stock is listed on NYSE.

A close examination of the technical charts throws up an interesting and potentially bullish technical setup. As evident from the weekly chart above, the stock had remained in a secular corrective decline between 2018-2020; it retraced from the levels of 122, lost most of its value, and saw the low point near 12.63.

However, the stock managed to form a base for itself between the 12.63 – 25.80 zone, and finally confirmed the formation of a bottom by moving past the 26-mark. The up move continued and the stock found itself resisting the 100-101.50 zone multiple times over the past year.

The pattern analysis of the stock shows that over the past 11-months, the price action has resulted in the formation of a bullish Inverted Head and Shoulders pattern. Normally, such patterns act as bullish reversal patterns, but at times, they also act as bullish “continuation” patterns.

The neckline for this pattern exists at the 101.50 level; the point at which the stock has resisted several times in the past.

Should a breakout be anticipated?

Ideally, one must wait for a confirmation before taking any actual positional call for the stock; in this case, any move above 102 will confirm the breakout.

However, if we look for other pieces of evidence present on the chart, all point towards a higher probability of the breakout taking place.

Over the past eleven months, all the Moving Averages have adjusted themselves. The shorter ones are above the longer ones. While the 50-Week MA is above both the 100-, and the 200-Week MA, the 100-Week MA is above the 200- Week MA as well.

Secondly, classical patterns aren’t always picture-perfect, and so is this Inverse H&S pattern. The left Shoulder is not a perfect classical shoulder as one would normally have. However, if we use the volume to confirm this formation, it does validate the present formation. Volumes are supposed to be higher than the average when the formation of a left shoulder takes place, and this was the case with DY.

The stock has a continuing PSAR buy signal. The weekly MACD is bullish and above the signal line. The weekly RSI is neutral and does not show any divergence against the price.

The Relative Strength Line (RS Line) against the broader S&P 500 Index is rising; it is above its 50-Period MA.

Over and above the aforementioned pieces of evidence present on the chart, the examination of the Relative Rotation Graph (RRG) shows that the stock has directly roled inside the leading quadrant when benchmarked against the broader S&P500 Index.

This behavior on the RRG can be attributed to a strong return of the relative momentum in the stock against the broader markets.

If the current pattern resolves on the expected lines, it can test 130-132 levels. This can translate into a potential return of ~33% from the current levels. Any close below 82 will negate this view. Even with these figures, this opportunity offers a healthy risk-to-return ratio of 1:2.

Milan Vaishnav, CMT, MSTA,
Technical Analyst,
Member: (CMT Association, USA | CSTA, Canada | STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)