LIC Breaks 10-Day Losing Streak! Finally a Bottom in Sight?

Life Insurance Corporation Of India (NS:) has given its investors a tough time since its listing. First, LIC shares were listed at a discount, depriving investors of listing gains and second the stock kept on tumbling to newer lows, making investors run for a cover.  

The share price of LIC never seemed to give a ray of hope for the recovery of capital to investors. Although some of the credit for the fall could also be given to the weak broader market sentiments, the stock had its own issues with excessive supply over demand. In short, the fall of LIC shares is a perfect example of a “falling knife”.

Since the listing, the LIC share price has tumbled over 22.96% to the last closing price of INR 674.3, while the index has fallen by only 3.24% in the same time period, clearly indicating the sheer underperformance of LIC shares. 

LIC shares and Nifty comparison

Image Description: Comparision of LIC shares (Blue) and the Nifty 50 (Red) since 17 May 2022

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It’s not just the fall that kept investors worried about their holdings but the intensity at which the shares were falling. LIC shares had been giving a lower closing for the last 10-consecutive days, including yesterday’s fall which eroded over 5.8% value.  However, a streak of red sessions finally ended today, giving investors some relief from a consistent meltdown of LIC share value.

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Interestingly, the stock gave a positive closing in a weak market, when the majority of the sectoral indices ended the session in the red zone. LIC shares were up 0.91% to INR 674.3 by closing, while the Nifty was down 0.27% to 15,732.1. 

So can investors expect a bounce-back now?

Well, a break from a losing streak is definitely a positive sign and could be taken as an early indication of investors finding these levels as a lucrative investment opportunity. However, only one day of a minor gain should not be taken as a sign of a strong trend reversal as a quality bottom formation generally takes a bit of time. 

LIC chart

Image Description: Daily chart of LIC shares with volume bars at the bottom

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With that being said, there is no questioning that the stock is at a highly oversold level and a short-term counter-trend rally could be witnessed. The early signal of an impending up move could be gauged when the stock breaks above its falling trendline as shown in the chart above. 

Today’s high is also very crucial. Why is it so? Because for the last 10 sessions LIC shares couldn’t even breach the previous day’s high, therefore the occurrence of the same now can be a good sign of bulls kicking in. Any rally could stretch all the way to the nearest resistance of the INR 800 level which was the previous support and where most of the investors would try to cut their losses.

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Another pattern to look for a bottom (which is my favourite) is to look for a bullish divergence. A bullish divergence is one of the best early warnings of an abating downtrend and the start of a new one on the opposite side, at least for the short term. If the stock makes a bullish divergence before starting an up move, bears should start to worry then.

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