The broader market continues to be instilled with fear over the Covid-19 situation in China, with the index tanking 0.42% to 18,124 by 11:06 PM IST. There’s only one sectoral index that is trading in the green zone and that is the index, up by 0.2% to 28,822. As the markets are correcting, a better idea for long opportunities is the look for stocks that are staging a comeback from lower levels, rather than betting on stocks that have already run up a lot.

On that note, here is one stock wherein the risk-to-reward ratio seems quite favorable, considering the reversal from around all-time lows. The company is Nureca Ltd (NS:), from the pharmaceutical space which has a market capitalization of a mere INR 496 crores. Picking up Pharma stocks in this fearful environment seems to be a safer bet and on top of that, a stock that’s outperforming the sector makes it an even better proposition.

Image Description: Daily chart of Nureca with RSI at the bottom

Image Source: Investing.com

The share price of Nureca rallied like crazy after debuting on the NSE in February last year. The stock was listed at INR 615 and surged to a high of INR 2,315 in less than 8 months, delivering a massive gain of 276% in a jiffy. But soon the tide turned and it started falling with the same intensity, marking a low of INR 483.7 this month. This behavior of the stock shows its ability to deliver one-sided moves, which is not a big task for such a small-cap company, owing to its highly volatile nature.

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Now, the buying interest is again kicking in and the stock jumped 13.8% to INR 564 in today’s session, not just beating the broader markets, but also the Index which is trading negative for the day so far, with a cut of 0.27% to 12,888. 

Before gaining strength, there was a bullish divergence being formed at the very bottom which I repeatedly mention, is one of the best reversal signals. In fact, the stock is in my portfolio as well and the logic to add it was this divergence only. The volume on today’s move is recorded at 1.54 million shares, which is the highest one-day volume in the history of the stock, even beating the listing day’s volume which is generally very high. 

How far the reversal could last? As the correction had been quite deep, in a one-way fashion coupled with investors’ inclination towards the pharma space as Covid-19 is jittering the markets again, the rally could potentially help the stock to touch INR 720 in the near future. The good part is, there seems to be very little scope for the stock to break its previous low from here, which is INR 483.7. 

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Disclaimer: Nureca shares are in my portfolio


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