Looking For Some Mean Reversion

The first step in the bottoming process in any bottoming process is to stop going down...and today's stock, Deepak Fertilisers & Petrochemicals, is exhibiting signs that it may be ready to do just that.

Here's the stock finding briefly undercutting decade-long support near 80 and quickly reversing as momentum diverges. This failed breakdown setup could potentially lead to a fast move in the opposite direction, particularly with prices sitting nearly 160% below their 200-day moving average...that's a lot of room for mean reversion.

Click on chart to enlarge view.

Here's Shipping CP India, which experienced a similar setup several weeks ago and quickly rallied nearly 40%.

We're looking for a similar move in Deepak Fertilisers & Petrochemicals. Longer-term bottoms take time to develop, so right now we're looking to simply see how this failed breakdown develops and go from there.

What's clear is that the reward/risk is no longer favorable on the short side and that bulls have control again.

If we're above 80 on a weekly closing basis, we want to be long and looking for a double to 160 in the coming weeks and months.

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Allstarcharts Team