Traders are always attracted to Momentum plays because that's where all the action is. But momentum plays have a script of their own. They tend to frustrate impatient traders before making a solid move.
Lets take a recent example: HCL Infosystems
Momentum Initiation: HCL Infosystems stock rallied from 36 on October 01 to 64 on October 09 - rally of 75%. This move has created enormous amount of buzz on what's happening... talks of turnaround and blah blah blah.
But the big question for trading community - what will stock do next? The stock has turned sideways and can correct back to 20 day moving average or 50 day moving average.
After a big move: The Waiting Game
The real thing that happens after a sharp move: period of long time correction and stock consolidates on and on and lots of impatient traders get tired and move on. Just when people forget about the stock - it does the next big move. Momentums don't fizzle out so easily but yes they take long breaks in between that can range from 2 weeks to 2 months and that's where they test the patience of even short term traders.
HCL Infosystems stock will be a fascinating momentum watch. Whatever stock does will be a great learning experience for all of us. As long as stock trades above 50 dma - it's a stock to watch out for.
Please do your own due diligence before trading or investment. Do not treat the above as any recommendation
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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