Patience is a fancy word that only looks good to tell a story but it is a hard and frustrating experience when you are dealing with it. Also, it becomes too painful when you have to deal it alone. 2020 and 2021 have been exceptional years for Indian equities but ask any ITC investor and you will hear a different answer. Lots of people are now seriously thinking about whether it’s time to give up and move on than hold on to the pain of patience and frustration.
Here’s what ITC has done in 2021 ~ 4.7% return 🙁
The big number never tells the true story. It is when you scratch the surface and look at the road traveled, you realize what’s ahead. Here’s ITC weekly chart over the last 2 years:
ITC stock was in a downtrend before covid and it formed resistance at 265. Then covid came and stock sold off from 240 to levels near 150 around March end 2021. I remember ITC was my first recommendation during that time near 160 levels purely on dividend yield. The whole idea back then – there is nothing to lose by buying ITC at 160 levels.
ITC stock did recover with the rest of the market but it was not a smooth ride. The stock made many up and down moves and finally reached a covid high of 240 in Feb 2021 before selling off. A trade taken at 160 in March 2020 resulted in a 50%+ opportunity over 12 months. It was not bad for a large-cap stock.
The stock then started building a base at 200 levels and a 50-week moving average. It was another opportunity – just like it gave one at 160 in March 2020 – it offered another opportunity at 200 levels this year. The stock then staged a smart recovery to the next resistance of 265 – an upside move of 30%. But it seems there are many investors stuck in the stock and every time they see a rally, they offload the stock.
Resistance is at work: 1. Covid high of 240 acted as resistance in Feb 2021. 2. Nov 2019 resistance of 265 worked again in Oct 2021.
ITC story has been
- It builds a base at some levels like 160 in CY 2020 and rallies to a resistance of 240.
- It again built a base at 200 levels/50-week ma in CY2021 and rallied to a resistance of 265
What next?
ITC stock might create a base again and this time hopefully at 50 week ma which as of now stands between 212-220. It looks like in CY2022, it might break 265 and rally to the next resistance which stands at 285-310 zone. It is only when the stock declines below 200-205 levels that one should consider giving up on the stock not because it opens the stock for downside but it only means a long frustrating hold. And then it would be worthwhile to ask – why to lock your capital in a stock that’s going nowhere. But as long as it holds 50-week ma/210-220 zone – it’s worth holding on for now.
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