In today’s retracement on the upside, many stocks have had investors’ support. After a 2-day correction, investors seemed to capitalize on the dips which lead to a green session today. One stock that witnessed good buying after falling for the last 4 sessions is Metro Brands Ltd (BO:).
The company is a footwear manufacturer with a market capitalization of INR 21,204 crores and trades at a P/E of 100.21, compared to the industry’s average of 126.23. Other prominent brands in this space such as Relaxo Footwears Ltd (NS:) and Bata India (NS:) are trading at a P/E of 115.33 and 229.61, respectively. Hence, a P/E of over 100 is kind of common for this sector.
Now coming to the daily chart of Metro Brands which is no less than eye candy to technical traders. The stock rallied relentlessly for some two weeks, from July-end 2022 to 11 August 2022, clocking a peak gain of over 61%. This sharp one-way rally was soon followed by a consolidation phase for almost the next one month in which the stock moved sideways.
Image Description: Daily chart of Metro Brands
Image Source: Investing.com
This range-bound phase also led to the volatility contraction in the stock which exploded during the rally. The volatility contraction can be seen on the chart via a narrowing of the broader range of the stock as it progressed through the range, allowing the formation of a falling and rising trendline above and below the range, respectively. This combined price action led to the formation of a bullish pennant pattern on the daily chart which is a very bullish pattern and often propels the stock till the same distance as it traveled before the consolidation phase.
In other words, the breakout above the upper trendline resistance gives a target that is almost similar to the total length of the prior rally. In the case of Metro Brands, the breakout is yet to happen. Therefore, a level of around INR 835 should be watched carefully (CMP INR 814.5). As soon as the stock would surpass this level the breakout would materialize and the rally which was on pause for the last one month would start.
Upon a successful breakout backed by heavy volume, the stock could easily travel around INR 290 above the resistance which would lead it to somewhere around INR 1,125. I have ignored the very top of the previous rally for the target estimation as it was just a spike or a knee-jerk reaction. As the breakout hasn’t happened yet, the stock could also turn and fall back below the rising trendline support, which would totally negate this bullish pattern
