After ‘8 Red Candles’ & 33% Fall, Stock is Showing a Reversal!

  • Stock Market Analysis

The weakness in the Indian markets continues today as well on the back of a relentless fall in the US markets and the Indian rupee against the US dollar. The benchmark Nifty 50 index is currently trading 0.45% down at 16,930 by 9:47 AM IST but a bit of recovery has been witnessed from the day’s low of 16,825.4.

The 4-day fall in the markets has seemingly changed the status of many stocks to oversold. Momentum oscillators such as the RSI, Williams %R, CCI etc. can be used to gauge the overbought/oversold conditions in a quantitative way.

One stock has become extremely oversold, all thanks to a continuous fall in the last 8 sessions, leading to a severe cut of over 33%. The company is Can Fin Homes Limited (NS: CNFH ) which is a INR 6,150 crores big housing finance company and provides housing loans to individuals, builders/real estate developers and loans against property.

Image Description: Daily chart of Can Fin Homes with RSI at the bottom

Image Source: Investing.com

The stock has been battered like anything in the last 8 sessions, falling from a high of INR 678.05 to today’s low of INR 452.1. The intensity of the selling pressure can be gauged by the fact that the stock made only red candles in all 8 sessions, meaning all closing prices of the previous 8 sessions were lower than the opening price of the same day. 8 Consecutive red candles are rarely seen and definitely state the immense urgency of investors to exit.

Now, after falling steeply, the stock is showing a sign of bottom reversal. As of now, when the broader markets are trading in the red, the stock surged 3.76% to INR 479.4 making a piercing candlestick pattern on the daily chart. It is a two-candlestick pattern in which the first candle is a big red one and the second candle opens lower than the closing of the previous candle and closes at least halfway up through the real body of the previous big red candle. This is a good reversal bottom reversal sign. Investors should wait till the closing for the pattern to get confirmed.

Also, this reversal pattern is being formed in the highly oversold zone, which further increases the probability of an impending up move. The RSI (daily, 14) showed a reading of 19.4 yesterday which is noticeably lower than the benchmark oversold level of 30. Both these factors combined (reversal signal from an oversold zone) are making this stock a good candidate for a trend reversal from here.   

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  • Lakshmanan Venkatraman @Lakshmanan Venkatraman
    do we not consider fundamental news on this stock relating to change of MD?
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      It's already discounted. It was one of the reasons for the fall.
      Like 0
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  • Omkar Sutar @Omkar Sutar
    Make Sense.
    Like 0
  • Omkar Sutar @Omkar Sutar
    Make Sense.
    Like 0
  • Omkar Sutar @Omkar Sutar
    Make Sense.
    Like 0
  • Joyson DSouza @Joyson DSouza
    It will fall further
    Like 1
  • Joyson DSouza @Joyson DSouza
    It will fall further
    Like 1
  • Joyson DSouza @Joyson DSouza
    It will fall further
    Like 1

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