Stock Forming Base After 31% Fall; Time for Bulls to Charge?

Aditya Birla Fashion and Retail Limited (NS: ADIA ) is an apparel business with a market capitalization of INR 23,645 crores, retailing brands such as Loius Philippe, SF Jeans, Allen Soley, Peter England, VanHeusen etc.

The share price of Aditya Birla Fashion and Retail has been a laggard for more than 3 months now as investors are only witnessing lower lows for the last many weeks. After making a top of INR 359.5 on 1 November 2022, the stock came under a firm bear grip which led it to fall drastically in a short span of time. This fall which was thought to have taken a breather at around INR 300 soon breached this level as selling resumed after mid-December 2022.

Image Description: Daily chart of Aditya Birla Fashion and Retail with volume bars at the bottom

Image Source: Investing.com

After falling to a low of INR 244.85 on 27 January 2023, losing a decent 31% from the all-time high, the stock turned sideways, curbing its downtrend. This is a healthy sign after a noticeable downtrend as it indicates an increasing demand from the lower levels which is strong enough to change the downtrend to a neutral one.

This price action is also called a base formation and its sets the stage for a successful recovery. This base building has been going on for more than 10 days now and the longer it takes to make this base, the better the chances of a reversal get. There is a resistance of around INR 260 which if crossed (on a closing basis) might end the downtrend and trigger a reversal. There have been two instances wherein the stock crossed this level but came down swiftly on the same day, hence a closing above INR 260 is preferred.

The volume during this base formation has also been increasing, which is a good sign and indicates some buying action. The 10-average volume on 25 January 2023 stood at 1.64 million shares which jumped 61% to 2.65 million by today’s closing. Again, the higher the volume one sees, the better it gets for the impending reversal.

Now, after clearing the hurdle, traders can expect a quick 10% rally toward INR 285. There is strong support present at INR 245, which if broken, can lead to the resumption of the downtrend.

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