While the fronline stock market indices may be doing a whole lot of nothing, much of the action has now shifted to the mid-cap and small cap stocks. HBL Power Systems is one such stock that caught my fancy in the past few weeks. I can hear a few voice shouting why this stock? Be my guest and read through the rest of this post. Let’s start off with a monthly chart of HBL Power Systems.
The blue line in the above chart would need little explanation to the regular readers of this blog. It’s nothing but erstwhile resistance turning support. The stock now is trading close to its all-time-high of Rs.64.5 recorded in April 2015. We therefore do not have any meaningful resistance to identify and use as logical target. What do we do? You can probably use fibonacci projections. But I prefer Action-Reaction lines instead. Have a look at the Monthly chart below.
The lines displayed in the chart have described price well and notice have the price has pivoted at the dotted lines (representing 50% or half way mark). This suggests that the line and its slope have relevance and the upper magenta Reaction line may now be used a reliable target. For someone looking to buy the stock, and willing to wait for a few months, may consider Rs.82 (upper Magenta Reaction line) as a target.
Let’s take a closer look at the price action in the daily chart.
Those who believe in patterns may have already identified the triangle pattern and the breakout last week. Notice how the same concept of resistance –>breakout–> Support plays out in the daily chart too. Those who are convinced about buying this stock may have Rs.82 as their target. The stop loss for long positions may be placed at Rs.50.
I typically prefer a deeper stop loss for such positional trades, but trading style is such a personal thing. While the stop loss prescribed is at Rs.50, a breach of this level WILL NOT negate the bullish view. A fall below Rs.42 would make me abandon the bullish view. But, not for a moment am I suggesting a stop below Rs.42. Just detailing the observations so that you can design a trade plan that suits your risk profile.
Note: I own shares in HBL Power Systems. I bought my first tranche last week and intend buying more this week too. I am NOT a SEBI-Registered analyst. Hence, please consult your financial advisor before taking any decision based on the contents of this post / site. Please read the Disclaimer.