That’s because even when markets are in an uptrend, they rarely move in a straight line. Retracements are an inherent part of rallies, allowing the market to catch its breath before resuming its upward momentum.
For instance, the recent dip in Nifty50 from 25,333 to 24,800 could be seen as a temporary retracement within an overall bullish trend. For savvy traders, such retracements offer opportunities to enter at a better price before the trend resumes.
In this article, we will focus on five stocks that are in a consolidation phase and could be on the verge of breaking out and delivering significant returns.
1. Dabur India Ltd
Dabur, a household name in the fast-moving consumer goods (FMCG) space, may not be a favourite with short-term traders as it moves slowly. However, the stock’s chart is where the opportunity lies.
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After three years of consolidation, Dabur has hit a new all-time high, aligning with the broader bullish trend in the FMCG sector. The stock broke through its technical resistance level of ₹600 and surged to ₹662 before undergoing a retest. It successfully formed an inverted head-and-shoulders pattern, which is a strong bullish reversal signal.
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Currently, Dabur is trading near ₹665, which is the neckline of the pattern. A breakout above ₹665 could trigger a fresh rally, marking this stock as one of the top candidates for a breakout.
2. Gujarat Fluorochemicals Ltd.
Gujarat Fluorochemicals, a key player in the chemical industry, produces specialty chemicals, refrigerants and polymers. It has a solid track record of innovation and caters to various industries worldwide
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On the daily 3% X 3 point & figure (P&F) chart, the stock price has been trading in a range since hitting a high of ₹4,169 in October 2022. The price corrected to ₹2,500, where it found consistent support before resuming its upward movement.
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The stock price is currently hovering around ₹3,900, indicating that a breakout may be imminent.
Here are some key levels to keep an eye on:
- The first confirmation of the breakout will come with a daily close above ₹3,940, the high of the Donchian channel.
- A move above the all-time high of ₹4,169 would place the stock in uncharted bullish territory.
A series of higher lows preceded this consolidation, and a breakout beyond ₹3,940 and ₹4,200 could signal the resumption of a long-term bullish trend.
What is a P&F chart?
A point-and-figure chart uses Xs for bullish moves and Os for bearish moves. Unlike traditional time-based charts, these charts focus solely on price changes and are considered “noiseless”. They filter out minor price fluctuations, highlighting significant trends and reversals. The lack of time constraints gives a clearer picture of supply and demand dynamics, helping chartists make more informed decisions.
3. JB Chemicals & Pharmaceuticals Ltd
JB Chemicals, a prominent name in the pharmaceutical industry, specialises in manufacturing and marketing high-quality products both domestically and internationally. Its product portfolio spans several therapeutic areas, making it a well-rounded player in the healthcare sector.
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On the Daily 0.25% X 3 P&F chart, the stock has been in a steady uptrend, forming higher highs. The first breakout was observed above ₹1,900. The stock then entered a consolidation phase, reflecting the market’s broader retracement.
The key psychological level of ₹2,000 now acts as resistance. A successful breakout above this level could signal the stock’s next leg higher.
4. Blue Star Ltd
Blue Star is a leader in air conditioning and commercial refrigeration. The company’s innovative products and efficient service have made it a strong competitor in the heating, ventilation, and air conditioning (HVAC) space.
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On the daily bar chart, Blue Star’s stock recently retraced from a high of ₹1,889 and entered a phase of consolidation. Our proprietary study, the 62-period moving average channel using 62DEMA (high) and 62DEMA (low), shows that the stock tested this channel in December 2023 and again in August 2024, both times confirming the resumption of bullish momentum.
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The stock has also bounced back from the oversold zone on the relative strength index (RSI) during these periods, indicating that the bulls are still in control. A breakout above ₹1,800 could set the stage for the next bullish wave.
5. Indiamart Intermesh Ltd
Indiamart, the country’s largest online B2B marketplace, connects buyers and suppliers across various industries. While it is vital in facilitating trade, its stock price has been underperforming in recent months. You may wonder then why this stock is on our breakout list. Despite its underperformance, Indiamart’s chart pattern suggests that a potential reversal may be underway.
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The stock corrected after forming a double-top pattern, but accumulation has been observed in the ₹1,900-2,400 range, aligning with Wyckoff’s accumulation theory. After the initial markup phase, the stock entered a re-accumulation phase, a stage where smart money typically enters the market.
A breakout above ₹3,200 would likely signal the start of another markup phase, which could potentially trigger one of the strongest rallies in the stock’s history. With a shakeout level of ₹2,212 already tested, Indiamart’s stock could be gearing up for a significant move.
For traders, timing is everything
Timing is crucial when trading the markets, especially during euphoric phases, when emotions run high. The five stocks above all seem to be on the verge of breaking out from their resistance levels. These setups offer some of the best risk-reward opportunities in the current market, but as always, timing is everything.
As the broader market continues its bullish journey, these stocks’ next moves are worth watching closely. It remains to be seen whether they actually breakout.
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It also helps to remember that stock movements are driven by various factors, and the ones discussed above comprise just a small part of them. As a trader, risk management should be your top priority. In case the market sees weakness, you should be ready with your risk parameters.
Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.
Disclosure: The writer or his dependants may or may not hold the stocks/commodities/cryptos/any other asset discussed here as per Sebi guidelines.
