Every trade teaches us an important lesson. Wipro is up +160% since June 2020. Here’s how Wipro transformed from an underperforming stock to a now leadership state. This case study is another example of why following price action matters to catch the inflection point.
Wipro Price Action Case Study
Once upon a time, nobody liked Wipro. No valuation argument helped as the majority of traders and investors stayed away. This was the state of Wipro stock back in April 2020.
Wipro is a 110K crore market cap company available at a multiple of 11 but this is one of the most unexciting companies when it comes to the market.
The market does not like a company that has no buzz…scale, growth, new services anything
Na koee Umang hai Na koee tarang hai pic.twitter.com/AARqh28nhM
— Deepak Singh (@smarket) April 13, 2020
Wipro as a company had lost its way. It resulted in a huge market cap divergence with other frontline players.
The market cap gap has widened when it comes to frontline Indian IT companies:
There is TCS at $99 billion
Then
Infosys at $38.5 billion
Cognizant at $28 billionAnd
Wipro $14.3 billion— Deepak Singh (@smarket) May 23, 2020
THEN came the TURNING POINT FOR THE COMPANY
Fundamentals don’t drive stock prices. How people perceive those fundamentals drive stock prices. And people’s perceptions change when something dramatic happens
The funny thing about the market: It’s very forgiving if you give it something to get excited about. Wipro as a company started doing that way back in May 2020. It started with appointing a new CEO
Wipro stock did a breakout above dead cat bounce resistance on the appointment of the new CEO. It then even rallied from 205 to 225. It did something bullish, to begin with
Then came the big sectoral support
But the real move happened when the stock got sectoral support around the middle of July when frontline tech companies came out with superior earnings and bullish guidance. Wipro stock did a bullish candle move and I remember I gave a strong buy call around the price of 260
There was Ultimate pessimism with Wipro stock and then it tried to fix it by appointing a new CEO and then sectoral tailwind helped the stock make a giant move. And I remember once the turnaround is in play, even if you buy a little higher, like in our case, I recommended at 260, the stock even from that level has rallied a lot.
Once a large-cap turns around, then momentum lasts for a long time and one is rewarded for buying the dip
Wipro consolidated sideways and kissed 100 dma by 25th March around 400 levels. Now 3.5 months later the stock is up 40%
It’s always rewarding to buy a stock once a turnaround and trending move is in motion.
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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