Technical Analysis is all about reading charts, analyzing trends and visualizing scenarios. Let us look at Reliance Chart and build scenarios:
SCENARIO 1: Reliance ready to outperform the market.
Reliance stock has made a good progress in 2015...Chart repair process. The stock in a big move between April and June cleared a small resistance of 940. Post that move - the stock has traded sideways. It gave an opportunity for moving average to catch-up and 1.5 months later - the stock price is at 50 day moving average. Now if the chart repair process is for real, then Reliance stock can take support here and rally to 1140 - all time high resistance...making it a move of 15%+
The Big question: Will it happen? Well, nobody knows that. At this point of time, one can trade with this assumption and stop loss of close below 50 dma
SCENARIO 2: Slow Turnaround
One can also argue that Turnarounds are slow and hence one should not chase such stocks. It all depends on your belief and past experience. Such things are very difficult to predict. Here's another way you can read Reliance chart
As you can see - Reliance stock was struggling below 200 dma but then a big turnaround move cleared the resistance and now stock can pullback to 200 dma to test it as support before rallying again. There is a high possibility that one can see convergence of support around 200 dma/ and 940. If that happens, then a 20% move can happen from that point. The only issue: Will the stock correct all the way to 930-940?
The Big question: Which of these scenarios will play out. Now that's a tough one. It all depends on your belief system. As a trader - no matter which scenario you pick up - always remember your assumptions and stop losses. I am more inclined to trust scenario 1 right now but you never know. Please do share your feedback
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Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers