Volatility Breakout: Stock Changes Trend; Rallies Over 4%!

  • Stock Market Analysis

While many were fretting over a noticeable overnight plunge in the US markets, the Indian markets seem to be in their own league. The benchmark Nifty 50 index remained unscathed in today’s session and is currently trading 0.3% up at 18,619, by 9:54 AM IST with the metal index leading the gains.

While there is no doubt that the markets have rallied quite swiftly in the last few sessions, a possibility of a minor dip on account of profit booking could come. Therefore, going for long opportunities from the bottom is a preferable idea, than picking stocks that are already flying high. One such stock that has come on my radar is HEG Limited (NS: HEGL ).

The company is in the business of manufacturing and exporting graphite electrodes and has a market capitalization of INR 3,977 crores. The stock trades at a P/E ratio of 9.23 compared to the sector’s average of 55.94, making it quite an undervalued stock. Also, the company is currently trading at a good dividend yield of 3.88% making it an attractive option for dividend seekers.

Image Description: Daily chart of HEG with volume bars at the bottom

Image Source: Investing.com

On the charts, the stock seems to be making a shift to an uptrend after a prolonged downtrend. The share price of HEG is already up 4.26% to INR 1,074 even before the first hour of trading, clocking a healthy volume of 277K shares which is higher than yesterday’s entire day’s volume of 231K shares. In the midst of today’s rally, the stock also surged past the previous peak of INR 1,070 which is marking the beginning of an uptrend from here.

More interestingly, the stock also broke above the upper band of the Bollinger Bands®, which is a famous volatility indicator, developed by John Bollinger. These bands are dynamic in nature and depict the volatility contraction/expansion of the underlying security in a graphical form. These bands work on the concept of standard deviation.

Whenever a stock rises and closes above the upper band, it depicts a volatility breakout and hints at continued momentum in that direction. Although we have to wait for the closing, as of now, the price breakout on the back of volume expansion coupled with the day’s high above the upper band makes it a good potential winner. 

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  • arun singh mehra @arun singh mehra
    Aayush, I think this stock too much volatile. So, do you prefer this stock for weekly delivery trading.
    Like 0
    • Aayush Khanna @Aayush Khanna
      Hi Arun, I have a system in place that gauges volatility and adjusts my risk accordingly. Hence, I have absolutely no trouble trading volatile stocks.
      Like 0
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  • Dharma Nitheesh @Dharma Nitheesh
    Sir maharashtra seamless ltd analysis sir
    Like 0
    • Aayush Khanna @Aayush Khanna
      Has a good support around INR 365 - 362.
      Like 0
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  • namami ghosh @namami ghosh
    an accolade bounty, Guruji... your wish is my command
    Like 1
    • Aayush Khanna @Aayush Khanna
      Thank you, Genie! 😊
      Like 1
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  • Rohan Mukherjee @Rohan Mukherjee
    How do you find the stocks? Please can you provide the sources?
    Like 0
    • Aayush Khanna @Aayush Khanna
      Hi Rohan, I use Investing Pro.
      Like 0
    • arun singh mehra @arun singh mehra
      Aayush, I think this stock too much volatile. So, do you prefer this stock for weekly delivery trading.
      Like 0
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