Despite some selling in the benchmark Nifty 50 index, the Nifty Smallcap 100 index is still holding its ground with a 0.3% gain to 10,772. Investors are still showing interest in smaller counters on account of their increased risk appetite.
The company I am referring to is Lux Industries Ltd (NS:LUXI). It is engaged in the business of manufacturing and sale of knitwear, having a market capitalization of INR 4,542 crores and trades at a P/E of 31.98, compared to the sector’s average of 60.37. The stock is not seemingly undervalued looking at its earnings multiple, but also looking to deliver some decent gains on the chart.
Image Description: Daily chart of Lux Industries with volume bars at the bottom
Image Source: Investing.com
The share price of Lux Industries had been consolidating in a narrowing range since early May 2023. The range had been contracting from both the upside and downside, which is a volatility compression pattern. This price action turned into a very famous symmetrical triangle chart pattern on the daily time frame.
Today the stock jumped 2.32% to INR 1,545, by 3:15 PM IST and sliced through the upper trendline resistance of this triangle, translating into a healthy breakout. The volume on this day was recorded at over 177K shares which is over 520% higher than the 10-day average volume of 28.5K shares. As the breakout is clearly been backed by a volume expansion, traders can look for long opportunities in this counter.
A closing above the resistance of INR 1,530 would confirm the breakout. Looking at the dimensions of the pattern, traders can easily look for a level of INR 1,700 in the near future. The stock has faced good selling pressure from the upper end in today’s session, probably due to profit booking across the market, therefore a closing above the resistance level is important.
The lower trendline support can be used as a stop loss in case the stock takes a U-turn, which is currently at around INR 1,480. This trendline can also be extended to trail the stop loss.
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