While investors may be able to find a lot of stocks that have reversed from their ongoing fall, all thanks to the RBI’s 50 bps rate hike, some stocks have seemingly outperformed their peers on the back of massive investors’ demand. While the benchmark index ended the session 1.64% up at 17,094.35, one stock that was in its own league in today’s session was CMI Ltd (NS:).
The company is one of the well-known manufacturers of cables and is engaged in the entire process chain from development, design and manufacture to marketing and distribution of cables. The share price of CMI surged to an upper circuit limit of 20%, with the last closing price of INR INR 21.7 as the market turned extremely bullish. Interestingly, today’s 20% rally came just after a 9.2% decline in CMI shares yesterday. This heightened volatility definitely makes this counter not for everyone’s investing style.
Image Description: Weekly chart of CMI with the RSI at the bottom
Image Source: Investing.com
The volume for the day was recorded at 387.6K shares which is 140% higher than the 10-day average of 159.6K shares. However, most of the buying orders couldn’t materialize into the traded volume due to the lack of sellers. Therefore, this volume does not reflect the true picture.
Coming to the weekly chart of the stock there are two interesting developments that need to be looked upon. The first is the bullish divergence from the all-time low levels. Prior to the reversal, the stock had already started to make a bullish divergence, hence an indication of a reversal from here was there. This divergence has been formed at the all-time low levels, meaning the stock is bouncing from a very high oversold zone which further increases the potential up move from here.
The second factor that could work in the favour of a reversal is the formation of a hammer candlestick pattern on the weekly chart. Again, this is a reversal pattern that indicates the increasing strength of the bulls over bears and consequently an uptrend. The pattern is called a hammer because it looks like it and tends to hammer out the bottom.
Both these factors, combined with today’s massive demand, strong enough to hit an upper circuit limit are all pointing out to a continued momentum on the upside. As the analysis is on a weekly chart, the potential reversal could take a bit of time. The nearest resistance to which the stock can travel from here is INR 31, which is around the previous swing high on the weekly chart.
