Bollinger Bands Show 'Volatility Breakout', as Stock Rallies 7%!

  • Stock Market Analysis

Volatility is simply a metric to define the intensity of the movement of a stock, irrespective of its direction. As ever stocks move at a different pace, which also keeps on changing, their volatility varies. Generally, smaller companies with less volume tend to be more volatile than large companies with higher volumes. One stock that is probably gearing up to deliver a quick rally is Gujarat Ambuja Exports Limited (NS: GAME ) (GAEL).

It is an agro-processing company with a market capitalization of INR 5,358 crores. It has been growing its net income at an impressive 5-year CAGR of 24.56%, recording a profit of INR 475.44 crores in FY22 which is the highest for the company so far. Looking at the shareholding pattern, FIIs have increased their stake in every quarter since June 2021, and currently own about 5.07% of the company. Mutual funds have more than doubled their stake, from 0.07% in September 2021 to 0.15% in September 2022.

Image Description: Daily chart of GAEL with volume bars at the bottom

Image Source: Investing.com 

The share price of GAEL delivered a volatility breakout on the daily chart, as the stock rose 7.6% to INR 251.55, by 11:06 AM IST. Just like a support/resistance breakout, a volatility breakout is also a signal of an impending move in a stock, especially after a decent time of a contracting period. This can be gauged by using one of the most popular volatility-based indicators - Bollinger Bands®. These bands are based on standard deviation (default setting is 2 SD) and show a contraction/expansion in the volatility of the underlying security through a graphical representation.

Whenever the volatility increases, the distance between these bands expands and they narrow to depict a contraction in the volatility. If a stock breaks either of the bands, it depicts that the volatility is expanding and is termed a volatility breakout. As the shares of GAEL are comfortably trading above the upper band, we might see a sharp move in the coming days, on the upside. On the volume front, a total of 1.76 million shares have exchanged hands so far, which is the highest one-day volume since September 2022, so no doubt about the validity of the price move. 

The rally could easily stretch to INR 270 which might be on the screen this week. This is a good resistance level and therefore, bulls need to exert some more pressure to surpass this level. 

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100
  • Ritu Rajput @Ritu Rajput
    Nifty dwon side up side
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Wait for tomorrow's Gujarat election result.
      Like 0
    • Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

      Error: File type not supported

      Drop an image here or

      100
  • PRAVIN KOSARE @PRAVIN KOSARE
    always nice analysis
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks Pravin :)
      Like 0
    • Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

      Error: File type not supported

      Drop an image here or

      100
  • Deepesh Deshmukh @Deepesh Deshmukh
    check Tata Power
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Tata Power is more or less in a sideways trend.
      Like 0
    • Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

      Error: File type not supported

      Drop an image here or

      100
  • namami ghosh @namami ghosh
    ah... there is Guruji with another killer post... love the variety in the blogs...
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      All thanks to your suggestion :)
      Like 1
    • namami ghosh @namami ghosh
      thank you for being sensitive and responsive... we readers love that
      Like 1
    • Nageswara Rao Gandikota @Nageswara Rao Gandikota
      I was sitting with 85% profit and was thinking to sell it.  But some app says to sell at 400.  I just hold it now.  Your blog gives a confidence that it would rise to 400/-.  Thanks
      Like 0
    • Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

      Error: File type not supported

      Drop an image here or

      100

Related Articles