A ‘Bullish Divergence’ from Oversold Zone: Time to Place Long Bets?

It finally looks like the broader markets have started to hold their ground after a relentless fall in the past new sessions. The Nifty 50 index ended Friday’s session 0.67% up at 17,100.05 while Nifty Bank jumped 1.19% to 39,598.1 as confidence in the banking space is coming back. Small-cap stocks are also recovering from their recent lows and the Nifty Smallcap 50 index ended 0.89% up at 4,127.95.

A stock from this space is now catching investors' attention after a steep downtrend. The company is Accelya Solutions India Limited which is a software solutions provider to the airline and travel industry and has a market capitalization of INR 1,608 crores. The stock is also on the buying list of biggies as FIIs hold a 0.2% stake while mutual funds own a 0.78% interest.

Image Description: Daily chart of Accelya Solutions India with the RSI at the bottom

Image Source: Investing.com

After making a high of INR 1,718 on 23 January 2023, the stock witnessed a one-way fall and didn’t give a single chance to investors to make an exit. The continuous selling pressure in the counter threw it to a level of INR 1,065.1 in less than two months. This low was marked yesterday which translated into a sharp cut of 9.5%.

The RSI in yesterday’s session was giving an oversold reading of 28.42 which was an early sign of a probable bounceback. These kinds of readings make a perfect setup for mean reversion trades. To add to it, the formation of a bullish divergence was also witnessed at the same time which further increased the confidence in the reversal.

Today, as the broader markets recovered, bulls charged higher and took the stock 8.97% up at INR 1,174 as it surged past the high of 6 March 2023. This is a strong bullish candle which is clearly showing the strength with which bulls are lapping up the company’s shares. The volume figure of 76.8K shares is also the highest since 25 January 2023 which should not be taken lightly.

Now, as the downtrend is still intact, the stock has a probability to retrace to INR 1,300 where it would meet a decent resistance. Traders can capitalize on this short-term bounce but should refrain from a long-term bullish view as of now.

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