This Finance Stock hits ‘10% UC’ on the Back of Short Covering!

  • Stock Market Analysis

The Nifty 50 index opened the session on an extremely positive note, currently trading 1.91% up at 17,205 by 9:28 AM IST. The much-awaited reversal in the US markets and a fall in the dollar index are two of the many reasons for today’s rally.

As the sentiments have taken a U-turn many short positions have been trapped leading to a short covering in today’s session. One such stock which has been hammered by investors in the last few sessions, even making it hit a 10% lower circuit and now reversing from the lows in style is Mahindra and Mahindra (NS: MAHM ) Financial Services Ltd (NS: MMFS ). It is a midcap consumer finance company with a market capitalization of INR 22,162 crores.

The stock came down crashing after the RBI put restrictions on it to stop using third-party agents for loan recovery amid an unfortunate incident of killing by these agents in the process of loan recovery. Now as the markets are in a bullish tone, so does M&M Financial Services.

Image Description: Daily chart of M&M Financial Service with Fibonacci retracement levels

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The stock hit a 10% upper circuit to INR 197.7 at the opening tick and recorded a volume of over 9.3 million shares which is high considering a few minutes into the trading session. This is depicting that today’s move has also been supported by mass participation which is a good sign for long holders. As the stock fell quite swiftly from the higher levels prior to this move, the rally on the upside is not getting any resistance. Had there been a gradual fall, there could be some support levels made during the fall which would now have turned into resistance levels. However, as this is not the case, the room on the upside is almost free from the major overhead supply.

How far the stock could retrace from here? A 50% retracement of the entire fall comes in at around INR 205, meaning there is still some distance that the stock could travel from the UC. However, if the US markets are in for a very good reversal, the relative strength of our market might help the stock to retrace even higher in the foreseeable future. The broader trend of the stock is kind of distorted as of now because of very sharp moves on both sides. 

A lower circuit while falling and an upper circuit while rallying is making it difficult to gauge where the stock is aiming to head, therefore playing short-term movements, seems like an ideal way to go as of now.

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  • rajiv saboo @rajiv saboo
    sir can you please kindly share a single strategy to be played monthly !? in derivatives.i had read somewhere about a rally of around 1300 points in a month, accordingly what should be the hedge strategy!?highly appreciated if you can advise.regards,
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