When a stock breaks out with a large candle above a well defined resistance – it generates lots of excitement about future. Traders and Investors everybody jumps in with a hope that stock will surge to record highs in no time but sometimes it’s wrong timing. The market suddenly for whatever reason sells off sharply and with it pulls down every major stock of the market. It’s like Major interruption in otherwise ordinary normal bull market.
Example: L&T Finance stock broke out in July 2016 above the levels of 80. The stock even rallied post breakout to levels of 110 but then Global cues and demonetization pulled down the market and with it also L&T Finance stock back to levels of 80. Yes….a stock breaks out and delivers zero percent returns in six months time. A Breakout interrupted situation
Source: Chartalert.com
But see how this resulted in a powerful opportunity for 2017
Source: Chartalert.com
L&T Finance stock has rallied from levels of 80 to 210 and now the stock seems to be building a base at 160 for another move possibly over next 3-5 years
Another Example: Balkrishna Ind
Balkrishna Ind stock broke out in September 2016 but then sharp market correction happened – Breakout interrupted situation
Source: Chartalert.com
But see how this resulted in a powerful opportunity for 2017
Source: Chartalert.com
What we can learn?
When a stock breaks out, it usually wants to go higher. Sometimes while it’s doing so – it’s pulled back to the ground by sharp market correction and one should use that opportunity to pick that stock for huge gains in following weeks and months.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. 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