When it comes to the stock market, the most popular show: Follow the Leader. Once you have identified a Leader, you can get great returns just by following it closely and buying every dip it offers or simply just being invested in it. Here’s one case study to illustrate that point.
Case Study: Deepak Nitrite
Deepak Nitrite was a leadership stock in 2019 and so it was always a buy on dips stock in 2020. Here’s how it worked out:
Deepak Nitrite became a leadership stock – Breakout performance in 2019. As you can see in the chart below, Deepak Nitrite stock broke out above 320 in October 2019 and in few months, it rallied to 540.
Source: Chartalert.com
Then covid related sell-off happened in Feb-March 2020 and the stock came crashing down to the breakout point of 320 level [Buying Opportunity] It coincided with the Nifty low on March 23.
Source: Chartalert.com
Deepak Nitrite stock took support at a breakout point of 320 levels – rallied back to prev high of 540+ and pulled back. Usually, pullbacks to a moving average from resistance offers another buying opportunity. The similar thing happened here. The pullback to 100 dma at around the price of 465 came as a great buying opportunity and I covered it back then in June 2020 as Buy and Ride play.
Deepak Nitrite is up more than 100% since then. But that was not the only buying opportunity. Deepak Nitrite has moved up in a classic text book style since then. As you can see in the chart below again. It made a new high, pulled back to rally. It then consolidated to build a base at 700 and rallied again. It then made a new high, again pulled back to rally again.
Source: Chartalert.com
I always keep a close eye on leadership stocks because there is nothing more profitable than following a leadership stock.
Fundamentals don’t drive stock prices.
How people perceive those fundamentals drive stock prices.
As a market participant/trader, keep an eye on how the market views the fundamentals than being obsessed with your own version of fundamentals. It means look at the price action and it tells you without bias what the market thinks about the stock. Once you read the price action, go and find the reason why the market has such a view on the stock, and be aligned with it.
This is the level one mind training every individual requires to be in sync with market thinking. This is the real fundamental of Investing. I call it Science of Stock Price Action
If price action fascinates you – then Science of Stock Price Action is a great place to start.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. 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