[Premium] 7:1 Reward/Risk Opportunity In This NBFC Stock

Today's stock in focus in Bajaj Finance Ltd., which has been hit big. along with the rest of the Banking sector this year. The stock is down 62% from its February highs and has been consolidating near prior support/resistance near 1,930.

What's meaningful about the last month is that prices have been grinding lower as momentum makes higher lows, signaling that sellers are becoming less aggressive as the stock approaches a multi-year level of interest.

Click on chart to enlarge view.

After a large decline, we'd expect to see prices consolidate in a counter-trend fashion, but instead, we're seeing the stock consolidate in the direction of its underlying trend. From our experience, when stocks behave like this, they're more likely to reverse than continue on to new lows.

Most importantly, the risk is very well-defined in this situation. We only want to be long Bajaj Finance Ltd. if prices above their recent lows of 1,906. If we are below that level, then our thesis is no longer intact and we take the loss and move on. But above 1,906, there's real potential for the stock to squeeze higher towards 3,050 in the coming weeks/months.

We have to remain very selective in this type of market environment where a lot of stocks are NOT trending and whipsaws are common. In this case, the reward/risk ratio as of the close on Wednesday is about 7:1, which can be improved if bought closer to our risk management level. Regardless, these are the types of trades we can take on an absolute basis while we wait for the broader market and the majority of stocks to begin trending again.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team