HAL - Hold or Sell

Hello viewers. Welcome to the Fast Profits Daily. Myself, Brijesh Bhatia.

Markets have been coming back very strongly, right from 15,183 on the Nifty back towards 15,600 in today's session and markets have been showing some signs of a revival after a brutal sell off which we have seen in the last couple of weeks.

If you remember in the last week I've done a video, Is the Market Correction Over, where I discussed Dow Jones and Sensex long term charts, and I have indicated that 51,000-49,000 on the Sensex tends to be very, very strong support. We breached 51,000 levels down and are coming back very, very on a positive side, re-claiming 52,000 on the Sensex as well.

In this video, I'll be discussing one stock as you've seen in the title, HAL, one of the defence stocks, and it's been hugely volatile in current market scenario. Should you hold or exit? Let's look at the first chart over here.

 

This is HAL divided by Nifty 500 or CNX 500. If we look at this chart, this is the ratio chart which I have been using. The ratio charts helps you to identify the outperformance and underperformance of one instrument against the other.

So I have taken Nifty 500 because I want to take a broader market. As HAL is not into the Nifty 50, hence I have considered Nifty 500, considering the broader market structure which includes largecaps, midcaps, and even smallcaps.

So if you look at the HAL over here, the ratio chart is going higher and higher, which means that HAL is outperforming against the Nifty 500. And if you remember, at the start of 2020, if you look at the lows, the stock is strongly outperforming against the broader market, and if you look at the last six months, it has been slightly painful for some of the stocks which are trending a 52-week lows, and this stock is trending at 52-week highs.

Now, if you remember, in yesterday's session, HAL stock has corrected right from the all-time high of 1,972 last week, and this week starting on a negative note with a correction. It's down by around 10% on an intraday basis and the closing was somewhere around 9% negative.

So should you hold?

I think if you look at this 2022 start, this chart indicates that HAL has been hugely outperforming against the broader market and it may continue to outperform against the broader market.

There may be some hiccoughs but what are the HAL charts indicating? Let's look at the second chart over here.

 

If you look at the screen, this is basically, I'm using the technical studies which is a VSA, volume spread analysis and it's basically a part of Wykoff's Theory.

If you look at the structure over here, till yesterday's fall, which was around 9% fall, and if you look at the fall the black arrow which has been drawn, look at the volume on the downside.

The selloff was with a huge volume, which means that some of the smart investors have exited their positions because looking at the volumes on the fall, it indicates that, yes, the structure seems very, very bearish, as often now. But what are the historical charts indicating looking at the price action with the volumes?

Let's go back towards the start of 2020 during the pandemic fall. Now if you look at the structure over here, the same rise against the volume uptick.

Now, if you look at when the structure seems that when the uptick is happening or the momentum is very fast and furious on the downside with the volumes, the stock tends to retrace.

In 2020, the pandemic was a surprise for everyone. It was a black swan event. All the stocks had seen a huge correction. But if I look at back again in September 2020, where stocks were recovering, look at the volume on the uptick where the momentum is there, where I've marked the two arrows over here, and if you look at the structure over here, back with the volumes, the price has retraced.

Again back in 2021 start, look at the volume uptick over there. Prices were going higher with a volume uptick. But there was a slight retracement over here.

Similarly, if I just look at back in September 2021 and November 2021, over here on your screen, the prices went higher. There was an uptick with the huge volume, followed by another uptick with huge volumes in November.

But look at the price action. Again back slightly retracing, which means that if you look at the historical moves, as we say in technical analysis that history repeats itself, whenever there is a huge volume uptick happening into the HAL, there is a price retracement over here.

But what is the level of retracement that generally happens? Let me show you one chart over here.

 

This is a chart where I have plotted a 200 daily exponential moving average. Back in 2020, when pandemic happened it tested the 200 daily exponential moving average and remember there was a huge volume if you remember the previous chart which I have shown, and every time there is a huge volumes, the price retraces back towards the 200 daily exponential moving average and heads again higher.

So as an investor, if you look back in as I said, March 2021, where there was the huge volume uptick, we saw in May 21, the price testing back towards 200 days average. End of 2021, and start of 2022, we saw the price, testing back towards the 200 daily exponential moving average.

And now with a huge uptick on the volume in yesterday's session, there is likely that price may dip to retrace the 200 days average, which is currently placed somewhere around 1,450 probably around from a current level of somewhere around 1,750, if I just compare, it's somewhere around 15-18% over here.

But if you look at the structure, every time the price is testing around 200 days average, plus or minus 5%, it gives an excellent opportunity for investors to accumulate this stock.

Again, I believe that if there is a dip into the current market scenario into the HAL, I think 1,450-1,500 probably comparing the plus minus 5% here and there, I believe it will be an excellent opportunity for HAL investors to accumulate the stock and at current point of time I feel if you're not worried about a 15-20% dip into the stock and looking for long term per se, I believe you should definitely hold this stock.

This is one of the most outperforming stock in the defence space as well. As we have seen, it has been consistently outperforming against the broader market space. So yes, for the technical structure, I believe it is a hold.

For an investor, in case you have missed the rally in HAL, it has hit the new all-time high, where markets were trading around 52-week lows, and the stock was hitting 1,972, the all-time high, this retracement could be an excellent opportunity for an investor.

In case you missed it, grab this opportunity when market tests somewhere around 1,500-1,550 or probably as soon as the consolation happens, the average might go higher, and you can look for an opportunity when the averages go higher, and the price is consolidating the 200 days average, it will be a great opportunity for investors to accumulate this stock.

So as of now, holding stands out. If you're long, hold on to the stocks and once the market sees an uptick of momentum, we might see HAL's outperformance continuing once the momentum continues on the higher side, after testing the 200 days average.

Signing off, Brijesh Bhatia.