Long-Term Candidate: A 22% Rally + Weekly Cup & Handle Breakout!
Many stocks have enjoyed their fair share of rallies since the marked a bottom in June 2022. While some depicted a short-term momentum, many delivered massive breakouts on the charts which made them potential long-term portfolio candidates. One such stock that closed Friday’s session on an extremely bullish note is Arvind Smartspaces Ltd (NS:).
It is a small-cap real estate developer with a market capitalization of INR 1,199 crores and clocked a revenue of INR 264.42 crores of revenue in FY22, up 74.94% from the preceding year. The net income growth of 186.4% on a YoY basis in FY22 to INR 25.06 crores is also worth noting.
Image Description: Weekly chart of Arvind Smartspaces showing the formation of a Cup and Handle chart pattern
Image Source: Investing.com
The weekly chart of Arvind Smartspaces is where the interest lies for investors. The stock has formed a Cup and Handle chart pattern on the weekly chart which is a very bullish pattern and generally propels the stock to newer highs with high momentum. In this, the stock tends to witness a noticeable downtrend from the previous highs at a gradual and slow pace. There is generally no abrupt or sharp selling pressure seen during the fall. After reaching a point where the demand starts to outstrip supply, again a gradual trend shift takes place to a sideways or a neutral trend. This smooth transitioning is quite imperative for this formation as a very sharp reversal would distort the formation. This period was seen from July 2019 to May 2022 in the Arvind Smartspaces chart.
Finally, the stock attempts to make another trend change and starts to rally. This rally generally takes the stock all the way up to around the previous highs from where the initial decline started. Till this phase, the ‘Cup’ of the pattern gets completed. It is called so because of its close resemblance to a cup. However, as this level had already become a strong resistance level, the rally fades here and a retracement starts. This correction is called ‘the Handle’.
Once a rally starts from the handle, it is expected to breach the previous resistance (from where the retracement started) which marks the completion of this pattern. On Friday, the stock surged past this resistance with a massive weekly rally of 22.35% to INR 282.2. More interestingly, this pattern has been formed on a weekly time frame which increases the reliability and the potential target of the stock as higher time frames generally contain less volatility.
The rally could stretch to a level of around INR 400 – 420. However, as this is a pattern breakout on a higher time frame, these levels could take their own sweet time to materialize. Investors would keep an eye on INR 240 to participate in the rally. If the stock falls below the low of the handle, ie INR 140, then the bullish implications would be negated.