Adani Enterprises Hits ‘20% UC’; Reversal In Play!
The entire Adani Group is making a buzz in today’s session, but this time it’s due to its ‘deep green’ stocks. The mood of the market participants in Adani Group shares has taken a U-turn today. As of 10:46 AM IST, Adani Enterprises (NS:) is locked in at a 20% upper circuit to INR 1,887.2, sharply reversing from the bottom. The intensity of the reversal is almost as sharp as the pace of the prior fall.
In my previous analysis of Adani Enterprises, a word of caution from going short at these extremely oversold levels was clearly given. On 3 February 2023, the stock made a hammer-like pattern on the daily chart which is a reversal pattern, indicating an abating downtrend. This pattern and that too with a green real body was an even more firm signal of bears losing the grip on the back-then downtrend.
Image Description: Daily chart of Adani Enterprises with volume bars at the bottom
Image Source: Investing.com
Now, as the extreme volatility is still there, the reversal from here should not be taken lightly. As many bulls were trapped on the way down, now it’s time for bears to jitter. The rally from here could also be fueled by short covering, not just fresh longs. As there were a lot of shorts in the system on account of a severe downtrend, these bears would now run for cover and their buying (to square off existing shorts) would work as a catalyst.
Even by a very conservative estimate, the stock has the potential to soar to INR 2,200 odd levels which is around a 50% retracement of the plunge from 25 January 2023 to 3 February 2023. There are virtually no stop-loss levels in the vicinity, all thanks to the mind-boggling range of the stock in present times. Therefore, it’s better to trade with hedged positions which would allow you to digest exorbitant moves in either direction.
With that being said, the broader trend of the stock should not be deemed positive. The current up move is just a counter-trend rally on account of the high oversold status of the stock. The chart structure is still pointing to a downtrend and I believe equity investors would try to make an exit at every possible level which would keep the stock under pressure for a long time. To conclude, the ongoing rally should be played with a very short-term view in mind.