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While the last session of this week was a good one for bulls as broader markets recovered a bit from the selling in the preceding few days, some counters went absolutely bonkers on the back of high investors’ demand.
One such stock is Religare Enterprises Ltd (NS:) which is primarily engaged in the stock broking business and has a market capitalization of INR 5,705 crore. Surprisingly, the stock trades at an unbelievable valuation, with a TTM P/E ratio of only 1.85 and that too despite a 46.8% rally in the last 12 months.
Such a small company also has FII interest as they are holding a stake of 19.47%, as of June 2023, up from 18.3% a quarter ago.
Image Description: Weekly chart of Religare Enterprises with volume bars at the bottom
Image Source: Investing.com
If we look at the broader direction for over 2 years, the stock has gone nowhere. It has been trading sideways but the range is quite huge to actually call it a consolidation. Rather, the stock formed a quite famous Cup & Handle bullish continuation pattern on the weekly time frame.
The pattern generally forms after a rally, which we had witnessed before October 2021, when the stock skyrocketed from INR 20 odd levels to around INR 190. This mind-boggling rally took a breather which took the form of this Cup & Handle pattern.
On Friday, the stock soared 8.4% to INR 190.95 (totaling over 16% for the week) and surged past the resistance of this pattern which translates into the completion of the pattern and a consequent healthy breakout. Friday’s volume was recorded at over 6.1 million shares which is the highest one-day figure since April 2022 and over 645% higher than the 10-day average of 818K shares.
This is a very large pattern breakout and therefore the potential targets on the upside are also very high. It might sound a bit unrealistic, but the stock might start its bull run and travel all the way to INR 290, approximately a 50% profit potential. The stop loss for this trade can be placed around INR 140. And obviously, as the target is huge, the stock will take its own sweet time to deliver big gains.
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