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While falling stocks generally do not make up for a good candidate for long positions, a very aggressive fall in a very short span of time can provide a good mean reversion opportunity as such price cuts also attract a lot of value seekers into the game.
One stock that has taken a heavy beating in the recent past but is now looking to pare some of the losses is TCNS Clothing Co Ltd (NS:). It is a women’s apparel brand, having a market capitalization of INR 2,341 crore. The company has a diversified supply chain network with over 250 partners and has the largest women’s distribution network in the country, with over 400 outlets.
Image Description: Daily chart of TCNS Clothing Co with the RSI at the bottom
Image Source: Investing.com
The company is reeling under losses for the last 2 quarters which could be one of the reasons for the drop in its share price. For the year, the stock is down over 47%, but a one-sided fall since 21 August 2023 contributed to the majority of the losses. The stock fell so sharply, that the RSI (daily, 14) was showing a reading of 24.68 a couple of sessions back.
This oversold reading is generally the first indication of a potential bounce in the share price as this is where investors who find value in the company kick in to accumulate the shares. As of writing, the stock is trading 1% up at INR 375, by 11:00 AM IST, which is exactly the high of the previous session.
There are no resistance levels in the near sight, therefore, a break above the previous day’s high can be deemed as the beginning of a positive momentum in the stock. Above INR 375, traders can expect the stock to rally to 402 in the near future. A very aggressive target should not be maintained as the trend is steeply negative, and this is just a bounceback rally I am expecting.
In case the trend resumes on the downside, the exit levels are very close, at INR 366, giving a very healthy risk-to-reward ratio of 1:3.
In case you want to connect with me, reach out on Twitter. My handle is – aayushxkhanna
Read More: 3 Large Caps Trading at a P/E of Over 100!
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