While the large-cap index is trading flat for the day so far, the Nifty Smallcap 100 index is up 0.74% and is trading at a new 52-week high of 11,940, by 10:31 AM IST. Form the last few sessions, the action in the smaller space is much stronger than large caps which is continuing today as well.
A stock from this space, that’s going all guns blazing in the morning session is GRM Overseas Limited (BO:GRMO). It is a rice trading company that focuses on Basmati Rice, Indian Long Grain Rice, Sugandha Rice, etc., and has a market capitalization of INR 1,020 crore.
Image Description: Daily chart of GRM Overseas with volume bars at the bottom
Image Source: Investing.com
For more than a year, the stock had been trading sideways, going absolutely nowhere, despite the broader rally in small-cap stocks. This trading range kept on decreasing over time, due to volatility contraction. The highs kept on lowering while the lows kept increasing, and this combined price action translated into the formation of a symmetrical triangle chart pattern.
This is a volatility contraction pattern and a good signal of an impending move (on either side). When the stock breaks any of the trendlines that encapsulate the entire price action, a trend continuation in that direction is expected. In the case of GRM Overseas, the stock jumped over 12% in today’s session to INR 193 and sliced through the upper trendline of this triangle.
This resistance break was also supported by a healthy volume of 632.4K shares so far, which is over 1,230% higher than the 10-day average volume of 47.4K shares, and we are not even halfway through the session. This is quite a strong volume expansion and denotes a heavy demand for the stock which is a good sign for the impending rally.
As per the dimensions of the triangle pattern, the stock now holds the potential to rally to INR 235 in the near future. Aggressive traders can maintain a stop loss slightly below the breakout level, at INR 180, while more conservative traders can choose INR 166 for the same.
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