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While it may not sound right to try to fade a bull run but some trades if gone right can give massive profits. One such counter that’s coming on my radar is Power Finance Corporation Limited (NS:). This INR 81,133 crore big power sector lender has turned out to be a goldmine for investors in the last 12 months, delivering a massive return of 194.9%.
The trend is clearly towards the north, and it might not look like a good option to fade this strong run. However, mean reversion traders might find this stock a good potential candidate due to a very strong bearish divergence on the daily time frame.
Image Description: Daily chart of PFC with RSI at the bottom
Image Source: Investing.com
Divergence is one of my favorite indications of a trend reversal and this is the reason, I am not so bullish on PFC from here. As can be seen from the chart above, the RSI (daily, 14) has continuously been falling for a while but the corresponding stock (PFC) has been making newer highs. This variation between the stock price and the oscillator indicates a slowing down of the current momentum, which should caution bulls.
The only problem with this stock is its gigantic contract value, which is over INR 19 lakh and because of this, the margin required is too high, making this not suitable for small accounts. No matter how good a trade is looking, risk management should always take precedence over anything else.
Those who have a large account can look to fade this rally. Dabbling in the options market can also help minimize the risk on the upside. For eg. a short fut can be hedged with a long call, etc.
All in all, as long as the stock does not make a new high, a short-from-the-top opportunity exists, from the CMP of INR 247.
Disclosure: I have PFC shares in my portfolio.
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X (formerly, Twitter) – aayushxkhanna
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