Chart of the Day: Stock ‘Breaks Resistance’, Soars to 7-Month High!

One stock that has been buzzing since the beginning of the session, despite a lackluster performance by the frontline index, is HDFC Asset Management Company (NS: HDFA ). abrdn Investment Management, which is one of the promotor companies of HDFC (NS: HDFC ) AMC has decided to liquidate its entire 10.21% stake, subject to regulatory approvals, which worked as a catalyst for today’s move. It also minimized its stake in August 2022, selling 5.58% of its holding.

HDFC AMC is a midcap asset management company with a market capitalization of INR 46,759 crores and trades at a P/E ratio of 33.56, compared to the industry’s average of 22.87. It posted a record-high revenue of INR 2,433.2 in FY22, translating into a net income of INR 1,393.13 crores. Over the last 5 years, the net profit has grown at a yearly rate of 20.42%.

Image Description: Daily chart of HDFC AMC shares with volume bars at the bottom

Image Source: Investing.com

Coming to today’s price action, the stock rallied over 4% to INR 2,287 by 2:45 PM IST, the highest level in over 7 months. This is a very clean breakout that materialized today as investors charged higher on the back of abrdn’s stake stale. 

The level of INR 2,200 had been working as a strong resistance, since mid-August 2022. After a rally from May 2022, the stock faced profit booking which threw it from ~INR 2,200 to around ~INR 1,820. This correction was gradually met with increasing demand which eventually started to outstrip the supply and as a result, a recovery from the low began quite quickly. The formation is similar to a rounding bottom, but the correction and the rally are somewhat sharp, so it’s more like a V-shaped bottom.

Although I prefer a smooth bottom, rather than these sharp ones, still the chart looks quite amazing after today’s breakout. The recovery eventually bolstered the stock to a high which surpassed the previous peak from where it started its retracement. The volume action is also impressive today. A total of 1.72 million shares have exchanged hands so far, which is the highest volume since mid-August 2022. Hence the reliability of this breakout seems to be quite good.

That does not mean that a correction from here could not come. If a level of INR 2,200 comes in the next few sessions on account of profit booking, then that would be a much better level for the bulls or left-out investors to participate in the rally.