A stock trading near all-time highs is one of the best candidates for continued upside momentum. Some investors might argue that these stocks are generally highly overbought and therefore might prefer to steer clear from them, and there’s nothing wrong with this. However, if a stock is approaching its lifetime high, fueled by a volatility breakout, in that case, it could be a perfect recipe for a high probable momentum, strong enough to break the previous highs.
This is exactly what is happening with the share price of Max Healthcare Institute Limited (NS:) which is a provider of home health care services including Patient Care, Healthcare Services, and Hospitals. The company has a market capitalization of INR 36,720 crores and its shares are approximately 2.1x more volatile than the index.
The stock has remained on FIIs’ radar as well as they have significantly ramped up their stake from 14.59% in March 2022 to 23.24% in June 2022. It is uncommon to see such a noticeable increase in the stake in one quarter. In fact, Mutual fund holdings have seen an even bigger rise, from a mere 4.83% stake in March 2021 to 19.21% in June 2022. However, out of 50.6% of promotors’ stake, 25.9% is pledged which is a bit of concern.
Image Description: Weekly chart of Max Healthcare Institute with volume bars at the bottom
Image Source: Investing.com
After reaching an all-time high of INR 458.05 in January this year, the stock faced some profit booking, in sync with the broader markets. However, it did not fall much and took support from around INR 325 and bounced back. Since then its range had been narrowing and the stock turned sideways, resulting in the formation of a symmetrical triangle chart pattern. This pattern reflects volatility contraction in the stock which provides fuel for a breakout. The longer the stock stays in this triangle pattern, the higher the fuel it would get on the breakout.
On Friday, Max Healthcare Institute shares rose above the falling trendline resistance of around INR 400 and comfortably closed above it. A 9.14% rally to INR 413.3 was everything that was required for the stock to gear up to break its previous lifetime high. In fact, a weekly closing above the resistance generally delivers an even more profound breakout (which has happened in this case).
The volume on the breakout day also holds significant importance and determines the quality of the breakout. On Friday, the stock clocked a volume of 9.46 million shares, which is around 611% higher than the 10-day average volume of 1.33 million shares. Hence, a good volume confirmation is also there. The nearest level to which the stock could rally is around INR 530, which depicts an upside potential of around 28% to 30%.
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