Catching a falling knife is no easy task. Stocks like this should be on your watchlist as they do very good mean-reverting trades. This is a form of trading in which traders bet on countertrend moves after a stock has deviated significantly from its average value, or simply been oversold/overbought.
After consistently underperforming over the past months and costing investors billions of dollars, Nureka (NS:) shares appear to have finally hit bottom. With market capitalization he is a small pharmaceutical company with Rs 334 crore. His share price has been one of the most volatile counters in the pharmaceutical industry, falling a whopping 81.6% over the past year, giving investors no chance to exit.
The pace of the decline accelerated in the last few sessions as the stock hit a 10-day losing streak, finally ending today. With the price plummeting sharply, the valuation for this counter is tantalizing with his P/E ratio of 7.44 compared to the sector average of 34.92.
Image caption: Nureka’s daily chart with volume bar at the bottom
Image Source: Investing.com
Today, as everyone on the street is running away to buy Nureka shares, the stock has taken a turn for the worse, making a staggering move of over 18% to INR 393 by 1:46pm IST. . This kind of rally in a flat to weak market cannot go unnoticed.
The stock has formed a large bullish candlestick pattern on the daily chart as the price surged. This shows a reversal from a downtrend to an uptrend. This is a two candlestick pattern where the body of the first candlestick is relatively small and is swallowed by the larger body of the subsequent candlestick. The place where this candlestick pattern formed, the all-time low, further raises the possibility of an imminent reversal. There is no problem with the rising stock as there is no resistance level nearby.
So far, 3.46 million shares have been traded in one day, 1,280% above the 10-day average of 250,000 shares. This kind of buying interest at these low levels could just be a signal that the current low is the eventual bottom. Clearly, the stock is up after an impressive 18% rally. , may retrace in the next few sessions, but the previous protracted downtrend appears to have been overcome.