‘Falling Knife’ Surges 6% in Weak Market with Volume Spurt!
The Indian markets are looking weak in the early session on Wednesday, all thanks to a deep red closing of the US markets on account of rising fears over continued rate hikes. While the index is down 0.62% to 17,716, by 9:45 AM IST, the index is the only sectoral index that is trading in the green zone.
As this space is showing a decent relative strength, it is a no-brainer to go with stock from this space in the midst of a red sea of numbers. The company I am talking about is Wockhardt Limited (NS:) which is a pharmaceutical company, having a market capitalization of INR 2,778 crores. The stock has delivered a negative return of 44.4% in the last one year, compared to a 7.2% fall in the Nifty Pharma index in the same period.
Image Description: Daily chart of Wockhardt with RSI at the bottom
Image Source: Investing.com
But today the stock is showing good strength, rallying over 6% to INR 204, which is the highest level since 1 February 2023 but more importantly, the stock also broke above a short-term falling trendline resistance on the daily chart. Attempting to spot a long opportunity in this stock is surely akin to trying to catch a falling knife, therefore risk management should be robust.
There are several reasons for it to deliver a noticeable gain from the current levels. The first has already been discussed, which is strong relative strength w.r.t to the broader markets and the sector. The second reason is the trendline breakout which is an early indication of a trend reversal toward the upside. This breakout has also been backed by a volume spurt and a total of 1.74 million shares have exchanged hands on the NSE in less than an hour of trading which is already the highest one-day volume since 4 January 2023.
Also, this reversal has been accompanied by the formation of a bullish divergence on the daily chart which is further improving the confidence in the impending up move. There is strong resistance at around INR 220 which should be an immediate target for bulls. As long as the support of INR 184 is intact, the continuation of a further downtrend is less likely to happen.
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