[Premium] Smallcap Base Breakouts To Watch For

JC Parets
May 17, 2018

As Technicians we like to use the phrase “the bigger the base, the higher in space” when talking about breakouts from consolidations. Long periods of indecisive price action build a lot of potential energy that is then released once a stock breaks out of its range. This applies to any asset class on any timeframe because the psychology behind the pattern is exactly the same. The weight of the evidence continues to suggest we want to be long equities, so I’ve taken a look through the Nifty Smallcap 250 and identified some of the best bases that are either breaking out or look poised to over the intermediate-term.

First up is Bajaj Corp. Ltd. which has been consolidating for the last 3 years and is now back toward the top of its range. We want to be buying a breakout above 525 and taking profits near 645.

Click on chart to zoom in.

Firstsource Solutions broke out of a 10-year base in March and quickly accelerated to the upside. This looks like the start of a very strong long-term trend, so we want to be buying weakness as long as prices are above 50.50 and take profits near 78. If/when prices get above 78, that becomes our new risk-management level and our secondary price target near 123 comes into play.

GE Power India Ltd. is attempting a breakout above its 8-year base. We want to be buying a decisive breakout above 900 and taking profits near 1,285, with a secondary price target up near 1,910.

Himachal Futuristic Communications Ltd. finally broke out to new all-time highs last September after doing nothing since mid-2011. It met our initial price target near 33.75 and has pulled back since. We want to be buying a breakout above 33.75 and taking profits near 49.

Jai Corp. Ltd. was in a downtrend since 2008 and started consolidating in late 2011. It broke out of its range last October to confirm the start of a new uptrend, but confirmed a failed breakout above our first price target near 169. Until we get back above 169 a neutral stance is best, but above that we want to be long and taking profits near 252.

KPIT Technologies just recently broke out of a 4-year base to new all-time highs. We want to be buying weakness as long as prices are above 232 and taking profits near 324.

Magma Fincorp Ltd. broke out of a 3-year base last June and quickly met our first price target near 183. It's consolidated since and is back at all-time highs, so we want to be buying a breakout above 184 and taking profits near 254.

Nagarjuna Construction Company Ltd. broke out to new all-time highs last November after doing nothing since mid-2011. Prices have been consolidating since, so we want to be long above 112 and taking profits near 172.

Ramkrishna Forgings Ltd. broke out of a 2.5-year base last October, failed to hold the breakout, and is now back above 755. As long as prices are above 755 we want to be long the stock and taking profits near 1,050. This failed breakdown should provide fuel to the upside and we'd like to see prices break out of this range shortly.

Sadbhav Engineering has been basing since early 2015 and is consolidating nicely above the breakout level of 365. As long as prices are above that level we want to be long and taking profits near 468.

Shoppers Stop has been stuck in a range since mid-2010 and is now consolidating back toward the top of its range. We want to keep this name on our radar and be buyers of a breakout above 625, with price targets near 845 and 1,205.

Sobha Limited has been basing since 2008 and failed a breakout attempt late last year. Prices are still consolidating below resistance, so we want to watch the stock and be buyers of a breakout above 580 and taking profits near 900.

Take Solutions Ltd. broke out of a 3-year base to new all-time highs in April, so we want to be buying all weakness above 185 and taking profits near 247, with a secondary price target near 347.

The last name is Tata Sponge Iron Ltd. has been basing for 4 years and has recently put in two smalled failed breakouts above 1,205. We want to be buying a decisive breakout above 1,205 and taking profits near 1,740, with a secondary price target near 2,610.

The Bottom Line: These 14 names from a variety of sectors/industries have been consolidating for years and are starting new moves to the upside, presenting an asymmetric reward/risk on the long side. The risk remains well defined in case we're wrong, but the weight of the evidence suggests that these are strong intermediate and long-term trends we want to be involved in. Like our other posts, we continue to focus on stocks above rising 200-period moving averages and with momentum in a bullish range. By sticking with the stocks exhibiting these characteristics, we can make the most of the current bullish environment.

I've also performed this exercise with the Nifty Midcap 150 for premium members, which you can access by clicking here.

Allstarcharts Team

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