‘Bullish Engulfing’ at 52-Week Low; Time for Trend Reversal?

Despite a falling market, the share price of Jubilant Foodworks (NS: JUBI ) was going against the grain in today’s session. While the Nifty Midcap 100 index was down 1.03% to 29,782.55, Jubilant Foodworks’ shares jumped 1.96% to INR 435.05, closing the session near the high of the day.

There’s no doubt that the stock is one of the worst performers of the last one year, as it delivered a negative return of 14.7%, compared to a 3% gain of the Niftt Midcap 100 index. The lackluster performance of the stock has thrown it to a good valuation, with a TTM P/E ratio of 66.6, and peers such as Westlife Foodworld Limited and Restaurant Brands Asis are still struggling with losses.

Image Description: Daily chart of Jubilant Foodworks with RSI at the bottom

Image Source: Investing.com

After falling to a 52-week low of INR 412.25 today, the rally helped the stock in making a bullish engulfing pattern on the daily chart. While this pattern in itself is a bullish reversal one, which indicates a probable end to a prior downtrend, its placement on the chart - at the 52-week low further improves the potential of an impending upside.

The price gain was also supported by mass participation. A total of 3.38 million shares exchanged hands on Monday which is 55% higher than the 10-day average volume of 2.18 million shares. This is not a very high volume but we are not looking at a breakout here that necessarily has to be accompanied by heavy volume. On this reversal move, a higher-than-average volume seems sufficient for now.

One can also notice the formation of a bullish divergence on the daily chart. The RSI (daily, 14) is clearly forming a bullish divergence as can be seen from the chart above. This is also a bullish indication and its formation at the very low is quite good. And not to forget the relative strength of the stock in today’s session is the icing on the cake.

The options chain data is showing a short covering on the call side as a buildup of negative open interest (OI) is there. On the upside, the nearest target to which the stock could travel is around INR 467 which is the immediately preceding peak, marked on 9 March 2023. If the stock crosses this hurdle, then the reversal would get confirmed on the chart and traders might see the beginning of an uptrend from there.

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