Bottom Reversal: Stock Gains 5% Amid ‘Bullish Divergence’!

  • Stock Market Analysis
  • Editors Pick

Bullish Divergence is one of the best reversal signs and my personal favorite. It is simply the disagreement between the price and the corresponding oscillator, wherein, the price makes a lower low but the indicator fails to replicate the same.

Today, the share price of Amber Enterprises India (NS: AMBE ) initiated its reversal from the lows after forming a bullish divergence. The company manufactures home electronic items such as washing machines, refrigerators, ovens, etc., and has a market capitalization of INR 6,631 crores. The stock is currently trading at a P/E ratio of 60.74 compared to the industry’s average of 143.09.

Image Description: Daily chart of Amber Enterprises India with the RSI at the bottom

Image Source: Investing.com

After a consistent fall for a long time, the stock had been making a bullish divergence on the daily chart. Almost since the last few days of October 2022, the stock had been inching lower but the corresponding RSI (daily,14) had remained almost around the same level. While the price kept on falling to lower levels, the RSI failed to fall further which was the beginning of the divergence.

On 30 November 2022,  when the price fell to a 52-week low of INR 1,920, the RSI was trading around 30.6 which represents almost an oversold zone. Precisely, below the reading of 30, a stock is considered to be oversold, but 30.6 is not far from this level. This oversold zone worked as a catalyst for the bullish divergence to materialize what it's known for - a reversal. 

While yesterday the stock started to gain momentum closing the session, 0.87% higher, today it bolstered to a high of INR 2,092, which is the highest level in over a month. Currently, the stock is trading 4.26% up at 2,021, by 2:33 PM IST and seems like it’s all set to make a move on the upside. The volume for the day so far has been recorded at over 491.7K shares which is the highest one-day volume since 9 June 2022.

As the stock is already beaten down, a sharp reversal from here could easily come, just like what is currently happening in PayTm. A rally till INR 2,400 could easily come in the next few days which is around a 20% gain from the CMP. On the downside, if it breaks its 52-week low marked on 30 November 2022, then the downtrend could continue and a newer divergence should be searched for before attempting to capitalize on the reversal. 

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  • Shah Khan @Shah Khan
    thank you very much
    Like 0
  • Sunil Pawar @Sunil Pawar
    उत्कृष्ट चार्ट पढ़ना
    Like 0
  • Sunil Pawar @Sunil Pawar
    उत्कृष्ट चार्ट वाचन
    Like 0
  • Ranjan Lohmorh @Ranjan Lohmorh
    good
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Thanks Ranjan :)
      Like 0
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  • Ritu Rajput @Ritu Rajput
    Nifty upside h ya dwon side
    Like 1
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Aaj to down hai :)
      Like 0
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  • namami ghosh @namami ghosh
    excellent article... curious to know how you track divergence... do you use a screener or filter? or is it just by drawing trendlines?
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      It's difficult to make a screener for divergence. I keep a tab on oversold stocks.
      Like 1
    • namami ghosh @namami ghosh
      Thanks for the input, Guruji. So i am guessing you set an alert for oversold stocks where RSI is below 30 and then draw trendlines
      Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Personally, I don't draw trendlines. Just a glance is enough :)
      Like 1
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  • Anil Kale @Anil Kale
    Sir plz your view on Zensartech
    Like 0
    • Aayush Khanna/Investing.com @Aayush Khanna/Investing.com
      Sure. Keep an eye on my next write-up :)
      Like 0
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