Looking at outperforming stocks in a weak market could help to spot some of the best potential candidates for a strong performance when the broader market recovers. In other words, a stock’s true strength is witnessed during the tough times and that is when the gets separated from the chaff.
Today, the market continues its second day of correction, with the benchmark falling 1.5% to 17,609, by 1:30 PM IST and all sectoral indices are trading in the red zone. One stock that is absolutely refusing to give up is a tea company – McLeod Russel India Limited (NS:). It has a market capitalization of a mere INR 248 crores and its stock is roughly 3.12x more volatile than the Nifty 50 index.
Image Description: Weekly chart of McLeod Russel showing in trendline breakout
Image Source: Investing.com
The share price of McLeod Russel shot up by 20% to INR 28.55 in today’s session as demand for the company shares skyrocketed to over 18.6 million shares which have exchanged hands so far. This is not just the highest one-day volume in the last many years, but also a massive 1,930% higher than the 10-day average of 0.9 million shares.
The stock had been gradually inching up since June 2022 lows, but the pace was quite subtle. Today, the aggressive buying spree from investors’ helped the stock to massively accelerate its uptrend.
In the due course of the rally, the stock easily surpassed its nearest resistance of INR 26 without any trouble. Today’s rally might look like the move has been missed, but that is a very short-term view. The broader picture is telling a different story. The weekly chart of the stock clearly shows that the stock has convincingly breached its falling trendline resistance and is ready to scale to newer highs.
During the prior downtrend, the stock took a heavy resistance around INR 35, which would ideally be the next stop for McLeod Russel shares, depicting a 20%+ rally from the CMP. However, as the stock moved 20% today, a retracement in the next few days or a probable consolidation phase should not surprise traders as it is a common behavior for any stock after a ferocious rally.
On the downside, if it retraces back to the previous resistance (now support) of INR 26, bulls would try to step in to participate in the rally. A fall below INR 23 on a closing basis might negate the current uptrend.
