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The broader markets seem to be taking some support from the lower levels. Although the trend hasn’t changed to positive yet, investors’ buying interest is clearly visible for the last couple of sessions.
Here’s a stock that has nosedived in the last few months but it now seems to be reversing from the bottom levels. Such mean reversion stocks provide a better risk-to-reward ratio as the upside potential is much higher than the exit levels.
The company is UPL Limited (NS:) which is primarily in the business of providing crop protection solutions, industrial chemicals etc, having a market capitalization of INR 43,921 crore. If you look at the long-term chart, you will notice the stock hasn’t participated in the broader market rally at all. In fact, its 12-month decline of 22% is denoting how investors tried to get away with this stock.
Image Description: Daily chart of UPL with the RSI at the bottom
Image Source: Investing.com
But the current 52-week low levels have also started to catch the interest of value seekers. The stock jumped 2.3% to INR 598.4, by 12:28 PM IST and this price action has developed a few interesting bullish signals on the daily chart.
Firstly, the stock has clearly breached its falling trendline resistance which is a good trend reversal signal. This is generally an early warning of bears losing control over bulls and points to an increasing demand.
Secondly, the stock also cleared its short-term horizontal resistance which can be clearly seen as a small horizontal line on the chart.
Thirdly, there is the formation of a bullish divergence on the daily chart which in itself is a very robust trend-reversal signal. All these bullish signals are coming together at around the same time which is what bulls might be cheering from hereon.
As this is a mean-reversion trade, traders should not wait for very high targets. On the long side, a level of INR 618 should be enough for now.
Read More: Stock Breaks Triangle on Weekly Chart, Gives 27% Upside!
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