Here's the weekly Chart of the stock
Let me make few observations by looking at the chart above:
- BlueDart stock rallied along with broader market from September 2013 to early 2015 (Remember Nifty peaked at 9000 levels back then)
- BlueDart stock decoupled from Nifty performance in early 2016 and it's very unfortunate that while Nifty is trading at new all time high now near 10000, Blue Dart stock is down 45% from the highs. It's a massive underperformance
There is a very simple Trading rule: Market participants don't like underperforming stocks and underperforming stocks tend to underperform more over a medium term horizon. Just by this logic, the stock is AVOID.
How stocks create medium term TOP?
BlueDart stock gives an excellent illustration of how stocks create medium term tops
It's quite simple. The stock knocks a resistance many times and in a strong trending market - it effortlessly breaks it most of the time, but when it fails to do so (like Phase 1 above), then 7/10 times - it breaks the support on the way down. That's precisely what BlueDart stock did. On its way down, it broke the support it was trying to establish (see Phase 2) and then has fallen to next Base Line. But now the Phase 2 support is the solid resistance
The Big Picture: BlueDart stock is in serious downtrend right now and when stocks are in downtrend - traders ususally sell the rally OR any upmove is short lived
What is stock doing right now?
BlueDart stock is making a pretty intense effort to bounce from the base of 4200-4300. It has done so many times this year....sign of bottom? Well, one should never look for support in a downtrending stock.
Searching Bottom: Sophisticated Analysis - Fibonacci Retracement
Fibonacci retracement levels use horizontal lines to indicate areas of support or resistance at the key Fibonacci levels before the trend continues in the original direction. These levels are created by drawing a trendline between the high and low and then dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%. ~ Investopedia
It's quite fascinating that BlueDart stock is making an effort to find support at 61.8% pullback levels. It's bound to create some excitement among math freaks. But again the big question: Has the stock made a bottom and Is it a buy?
The Answer: I have no idea and I will give the stock Pass. In a strong trending Bull market - one should always chase superior outperforming stocks. Blue Dart is certainly not that stock. The main issue - Why spend your effort and energy in a HOPE when you can clearly find outperforming strong bullish stocks all the time. One of the temptation lots of people fall into - I found a stock that has made a bottom. But my counter argument - Why invest in a stock that is not in sync with the broader market? BlueDart stock might well be at bottom but probabilistically the chances of failure is pretty high and one should avoid stocks that are not trending. When in Doubt, Stay Out!!!
Big Picture Message
Never Look for Top in an Uptrending stock and Never look for Bottom in a downtrending stock.
I hope you found the above case study interesting. Let me know your comments.
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