While paging through a few charts, IDFC caught my attention. I was reminded of my mentor’s quote “there are no accidents in price”. Stock price has this tendency to get stretched to an extreme and revert to the mean thereafter. Kindly direct your attention to the daily chart of IDFC featured below.
The up sloping red line in the middle is the Mean or fair value if you will. Price has this tendency to oscillate around this Mean. If the trend is up, the price hits the upper extreme and reverts to the mean in the form of a correction. If the correction gets severe, the price would get pushed to the lower extreme.
If you notice, the recent rally has turned down right at the upper extreme. The correction was arrested right at the centreline or the Mean. The Key Reversal Day pattern completed yesterday and the follow-up rally today is a sign of strength.
We now expect the price to make a new high beyond the recent swing high of Rs.185. We would view any dip to the middle red line as buying opportunity. Our positive view on the would be invalidated on a close below Rs.148.
(Disclaimer: The view mentioned in this post is based on technical analysis of stock price movement and not on company’s fundamentals. We may have shared this idea with our clients earlier. Neither Wealthindia Financial Services nor the author has any exposure in the stock discussed here.)