Man Infra - Breakout & Volatality contraction
My analysis is based on the Monthly chart. The monthly chart is considered ideal for long term investors and gives a directional perspective of the stock price.
The stock is forming a double bottom pattern. Typically, a double bottom is formed after a single rounding bottom pattern is formed and is often an early sign of a potential reversal. According to Investopedia "Rounding bottom patterns will typically occur at the end of an extended bearish trend. The double bottom formation constructed from two consecutive rounding bottoms can also infer that investors are following the security to capitalize on its last push lower toward a support level. A double bottom will typically indicate a bullish reversal which provides an opportunity for investors to obtain profits from a bullish rally. After a double bottom, common trading strategies include long positions that will profit from a rising security price."
Volume expansion can also be clearly seen as the candles are coming close to ATH (All time high). The ATH was in year 2010 and the stock has broken with a strong body candle and volumes after eleven years. If the period from January 2018 to July 2021 is observed carefully, there is volume contraction- this is a good sign.
Relative Strength against CNX Infra index is outperforming since April 2021. This is another positive.
Data from Screener.in shows that promoter has been increasing shareholding since September 2018 -from 63.13% to 66.10% in June 2021. Promoter buying is again considered a positive move.
Entry strategy - now that the longer timeframe looks positive, we should move to the lower timeframe to get an entry. Here I will move to the Weekly timeframe and follow the Stan Weinstein framework. The stock has to be above the 30 Weekly MA, volume expansion must be clearly seen, range and body of weekly closing candle must be strong. Stock must be in HH HL structure. The stock fulfils the Stan Weinstein framework. If stock retraces and takes support within the 75-81 zone, that would be a good entry point to add from risk reward standpoint. Ensure volume does NOT expand when stock retraces.
If you move to the Weekly timeframe, between the candles of 19 July 2021 to 30 August 2021 you will see a high tight flag (HTF) formation. The stock had run up approx. 86% between 19 April to 19 July 2021. HTF is a very rare pattern and forms in bull cycles and according to William O'Neil, HTF begins with a stock moving 100% to 120% in a very short time, usually four to eight weeks. It then corrects sideways no more than 10% to 25% usually in three to five weeks. It may not be HTF strictly by William O'Neil's definition, but the flag can be seen very clearly.
Risk management is key in both investment or trading. If we see the current market cycle, NIFTY50 is forming newer highs. The rise has been unprecedented. This is fuelled by supply of money in the markets. What if in the near future money supply is chocked by tapering by FED or hawkish stance by MPC of RBI? In that case we will see a retracement even if the broader economy is doing well, structurally speaking. No one knows the future and hence a safer approach is to invest using a pyramid model i.e. take an entry when stock is just above the 50 Day MA with volumes above average and scale up. This could be an equal split, for example, 34-33-33 or 50-25-25. There is no hard and fast rule. There is a possibility that stock may shoot up after the first tranche and not give another opportunity to enter at retracement, but what is market turns against us? In that case our loss will be limited to the first tranche only.
Disclaimer: I am not a registered investment advisor or analyst. This is not a recommendation to buy or sell. The purpose is to share with peer community and learn from the experts. For any investment or trading calls, please consult your authorised investment advisor.
The stock is forming a double bottom pattern. Typically, a double bottom is formed after a single rounding bottom pattern is formed and is often an early sign of a potential reversal. According to Investopedia "Rounding bottom patterns will typically occur at the end of an extended bearish trend. The double bottom formation constructed from two consecutive rounding bottoms can also infer that investors are following the security to capitalize on its last push lower toward a support level. A double bottom will typically indicate a bullish reversal which provides an opportunity for investors to obtain profits from a bullish rally. After a double bottom, common trading strategies include long positions that will profit from a rising security price."
Volume expansion can also be clearly seen as the candles are coming close to ATH (All time high). The ATH was in year 2010 and the stock has broken with a strong body candle and volumes after eleven years. If the period from January 2018 to July 2021 is observed carefully, there is volume contraction- this is a good sign.
Relative Strength against CNX Infra index is outperforming since April 2021. This is another positive.
Data from Screener.in shows that promoter has been increasing shareholding since September 2018 -from 63.13% to 66.10% in June 2021. Promoter buying is again considered a positive move.
Entry strategy - now that the longer timeframe looks positive, we should move to the lower timeframe to get an entry. Here I will move to the Weekly timeframe and follow the Stan Weinstein framework. The stock has to be above the 30 Weekly MA, volume expansion must be clearly seen, range and body of weekly closing candle must be strong. Stock must be in HH HL structure. The stock fulfils the Stan Weinstein framework. If stock retraces and takes support within the 75-81 zone, that would be a good entry point to add from risk reward standpoint. Ensure volume does NOT expand when stock retraces.
If you move to the Weekly timeframe, between the candles of 19 July 2021 to 30 August 2021 you will see a high tight flag (HTF) formation. The stock had run up approx. 86% between 19 April to 19 July 2021. HTF is a very rare pattern and forms in bull cycles and according to William O'Neil, HTF begins with a stock moving 100% to 120% in a very short time, usually four to eight weeks. It then corrects sideways no more than 10% to 25% usually in three to five weeks. It may not be HTF strictly by William O'Neil's definition, but the flag can be seen very clearly.
Risk management is key in both investment or trading. If we see the current market cycle, NIFTY50 is forming newer highs. The rise has been unprecedented. This is fuelled by supply of money in the markets. What if in the near future money supply is chocked by tapering by FED or hawkish stance by MPC of RBI? In that case we will see a retracement even if the broader economy is doing well, structurally speaking. No one knows the future and hence a safer approach is to invest using a pyramid model i.e. take an entry when stock is just above the 50 Day MA with volumes above average and scale up. This could be an equal split, for example, 34-33-33 or 50-25-25. There is no hard and fast rule. There is a possibility that stock may shoot up after the first tranche and not give another opportunity to enter at retracement, but what is market turns against us? In that case our loss will be limited to the first tranche only.
Disclaimer: I am not a registered investment advisor or analyst. This is not a recommendation to buy or sell. The purpose is to share with peer community and learn from the experts. For any investment or trading calls, please consult your authorised investment advisor.