For those of you who like to bet on mean reversion trades might want to have a look at the share price of Aditya Birla Fashion and Retail Ltd (NS: ADIA ). It is a midcap apparel retailing company with a market capitalization of INR 18,604 crores.
The stock had been falling relentlessly for the last 12 months, losing a decent 24.7% value. Recently, it fell to a new 52-week low of INR 184.4 on 23 May 2023 marking an oversold status. In fact, the RSI (daily, 14) also tanked below 30 around the same time which was a double confirmation of the stock getting oversold.
Image Description: 4-hour chart of ABFRL with volume bars at the bottom
Image Source: Investing.com
This could be a good setup for a reversal trade but in the case of ABFRL, there is another interesting trend-reversal indication - an inverse Head & Shoulders chart pattern. It is a prominent reversal pattern and is known to change the prior downtrend toward an uptrend. It might not be clear to see this pattern on the daily chart for an untrained eye, however, if you switch to a lower time frame, say 4 hours, then this pattern will be clearly visible.
Today, the stock jumped 3.58% to INR 204.15 and surged past the neckline resistance of this pattern, which is essentially a breakout signal. The only concerning factor for bulls is the low volume figure. The NSE recorded a total volume of 5.23 million shares today which is almost the 10-day average, nothing surprising here.
However, the confluence of the 52-week low + RSI oversold status + inverse H&S pattern at around the same time might help the stock to rally from here and pare some of the previous losses. As the trend is still steeply negative, holding onto very ambitious targets might not be a good idea as of now. A level of around INR 225 could become the first potential target on the long side after which the trend could be reviewed.
On the downside, a stop loss can be maintained either below the right shoulder of the pattern or at the 52-week low.
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sir thank you for your analysis. trades on South India gave bumper returnsLike 2
quarter results are in loss and there's no hope it's given in Q4 also.. technical chart maybe showing reversal, but yet to wait for a confirmation..Like 2
its a reversal ,higher time frame MACD also confirm the same.Like 1
a loss making company..better to onvedt in biocon or nmdcLike 4
Looks good on reversal broLike 0