Stock Rallies Amid Bullish Pennant Breakout with a 6% Move!

After a red trading session yesterday, the markets have recovered fully now, with the benchmark index trading 137 points up at 19,391, by 1:13 PM IST. The small-cap space is again outperforming large-cap stocks and one counter from this space that bulls are eying is Trident Limited (NS:).

The stock witnessed a sharp rally on 21 and 22 August 2023 on the back of high investors’ demand. This 2-day rally soon faded and the stock entered into a consolidation phase, which is a normal behavior after a sharp move. Such patterns also make up a good setup for the trend continuation upon a breakout in the direction of the trend. Patterns such as a flag and pennant are based on the same price action.

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

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Today, the stock came out of this brief consolidation phase and resumed its rally. It has breached out of the upper resistance of the bullish pennant pattern, where the consolidation phase resembles more of a triangle pattern.

Currently, it is up 5.6% at INR 38.5 and trading at the highest level of 2023. The volume backing today’s move also spiked to 66.6 million shares. The targeting mechanism of this pattern is quite simple and projects the magnitude of the impending rally which is equal to the rally prior to the consolidation.

In the case of Trident, that level is coming out at around INR 43, which gives a decent upside potential of around 12%. To manage the risk in this swing trade, a stop loss can be placed below the lower trendline support of the triangle, at INR 36.5. Also, as long as the small-cap space is going strong, the probability of hitting the target of this trade remains high. Traders can also think of exiting the trade mid-way in case they see profit booking in small-caps.

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