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As the small-cap stocks are still in flavor, here’s another counter that’s gaining attention on the street and is becoming a good candidate for an upside rally – Laxmi Organic Industries (NS:). It is a specialty chemicals company with a market capitalization of INR 7,001 crore and trades at a TTM P/E ratio of 71.1. This might seem a bit overvalued from the fundamental perspective, however, the daily chart structure is telling a different story.
Since almost mid-April 2023, the stock had been trading sideways with a slight bearish tilt. The gradual decline in the stock price didn’t depict a sharp liquidation from investors’ portfolios which is a good sign for bulls.
Image Description: Daily chart of Laxmi Organic Industries with volume bars at the bottom
Image Source: Investing.com
After trading with a neutral direction, today, the stock was finally able to break above its falling trendline resistance on the daily chart, gaining 6.5% to INR 279, by 12:04 PM IST. This is essentially a trend reversal signal and it is where bulls will start a bidding war which is eventually expected to take the prices further higher.
The volume on today’s breakout has been recorded at over 3.88 million shares so far, which is over 560% higher than the 10-day average volume of 585K shares. This kind of volume expansion instills confidence in the impending rally as any breakout when backed by a heavy volume jump has a high reliability.
Another good thing about this counter is when zooming out the chart, the stock seems to be trading at quite a low level which further increases the potential for the upside move, on account of mean reversion. The stock seems poised to touch the level of INR 301 in quite a short span of time.
This is the nearest resistance which turned the stock lower in April 2023. If this level gets taken out this time, then it will likely mark the bottom for the current prolonged downtrend and investors might see the level of INR 400 on the screen, thereafter.
The immediate swing low of INR 254 can become a good level to place a stop-loss order.
Read More: Trend-Following: A Profitable Approach to Stock Market Investing
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