A debt free heavy electrical equipment company which happened to have rallied by 13% on 31st December 2015 with extreme volumes has managed to break out above its 52-week high of 839. The sales of the company have been under pressure specially over last two quarters. The charts of the company though are telling a totally different story. The stock is Voltamp Transformers, and the chart is produced below:
As per Elliott wave theory, we see in the chart above that a 5-wave up-ward impulsive movement ended in December of 2014 with extreme volume. The stock has since spent the whole year tracing out a flat A-B-C type correction. Price wise this correction retraced more than 38.2% of the previous impulse wave, which is normal for wave 2 corrections of high order. This correction seems to have ended in September of 2015. Coincidentally the stock chose 31-December as the day to attempt to break the shackles by rallying 13% on high volumes, forming a breakout gap in the process. On this day the prices managed to rally well past the 52-week high as well. On a short term basis the prices are likely to carry to levels of 1136, which if broken would further confirm our long term analysis described below:
In our opinion it is very likely we are seeing a wave 3 impulse wave of higher degree in its early stages. This stock is very likely to maintain its momentum for quite some time to come. In price target terms since the higher degree wave 1 was a rally from 301 to 858 (around 557 Rs. rally), as per elliott wave theory the wave 3 (the one which began recently) can be expected to be 1.5 to 1.65 times this magnitude. This would mean we should see a rally of around 835-919 Rs. from September lows of 615 (end of wave C). Hence we see a minimum price target of between 1450 to 1534 for this stock. These targets have been arrived using linear scale, on percentage basis it is certainly possible to see higher prices (may be even 1800), before we face a major correction of the order we saw over last 1 year when prices fell by more than 40%.
Hence Voltamp Transformers is a stock that is likely to attract a lot of attention over the coming few months and it would be wise to buy this stock in the brief corrections that will invariably happen over time. Also, it is highly recommended to avoid shorts in this stock because if we are indeed seeing a wave 3 unfolding as we described, the price momentum could be fiercely bullish (as is the nature of wave 3) and any corrections may be expected to be short-lived and abruptly reversed.
Disclosure: At the time of publication of this post, our analyst is not registered with SEBI as a research analyst. Our analyst has an application for registration as a research analyst with SEBI pending for registration.
