Massive escape in M&Ms! Should you add more or reserve profit?

Indian markets started the week on a positive note, with the benchmark rising 1.86% or 304 points to 16,630 and 2.04% or 1,120 points to 56,003, as of 12:30 p.m. IST. Many stocks gained momentum today, primarily in the computer and automotive space.

However, one automotive stock has taken center stage in today’s session and that is Mahindra & Mahindra (NS:). The stock hit an all-time high of INR 1,007.4 and is trading in uncharted territory with no supply overhead. The catalyst for the move is the company’s results in the fourth quarter of FY22, as it recorded a multiple growth in profit to INR 1,292 crore from INR 245 crore in the same period last year.

The stock had been trading in a wide range of INR 980 up and INR 660 down since mid-November 2020. Twice in October 2021 the stock tried to break through resistance to reach the 4 digit mark but failed. both times, which makes the resistance even stronger.

Image description: M&M weekly chart, showing range breakout

Image source:

At the end of February 2022, just at the beginning of the war between Ukraine and Russia, the stock fell sharply (in synchronization with the border markets) from the odd levels of INR 875 to INR 671. For more than two years, the stock had been hovering between this range only, giving mean reversion traders plenty of opportunities to place trades against the trend. However, after spending so long in a range, the stock finally broke through resistance and hit the 4-digit mark for the first time since listing.

On the daily chart, the stock recorded a massive volume of over 8.06 million shares, the highest one-day volume since January 12, 2022. Such a multi-year breakout on large volumes is generally considered as a very strong signal for the continuation of the rally.

So how far can the stock rally from here?

Estimating a stock’s remaining move to an all-time high is very difficult because there are no more resistance levels to examine. However, in technical parlance, there is a way to estimate the target of a range breakout that could be used here. The potential move followed by a breakout could travel a distance equal to the height of the range.

This targeting mechanism should be treated more as a guideline than a constant movement. Other aspects such as main trend, volume analysis, stock volatility, any company-related events, broader market sentiment, etc. must also be taken into consideration.