What is Deep Value when it comes to price action?
When a stock undergoes a deep correction and come down to either of the following –
- 200 week moving average OR
- Breakout Level which stock broke out long back and rallied big from that level. A pullback to that earlier breakout level becomes a great opportunity
Case Study: Adani Ports
Source: Chartalert.com
As you can see in the chart above – Adani Ports stock broke out above 170-180 in 2014 and doubled from that levels to 360. But in 2015-early 2016 – stock corrected sharply and came down once again to levels of 170-180. That turned out to be excellent buying opportunity and see in the chart below how big the stock has moved from such deep value levels in 2016.
Source: Chartalert.com
Will Grasim do the same?
Grasim stock broke out above 790-800 and rallied to levels above 1000. Now the stock has pulled back again to 790 and bounced twice. If the market remains stable – one cannot rule out a strong rally in Grasim from this deep value level.
Source: Chartalert.com
The Lesson:
When a technically strong stock undergoes to deep market correction, then wait for the stock to declines to breakout levels or 200-week ma before hitting a buy button. They can turn out to be rewarding opportunity.
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