Stock Markets Analysis & Opinion

Breakout: Stock Breaks Trendline with a 5% Circuit

While the broader markets performed decently well on Friday, some small-cap counters remained on investors’ radar. One such stock was Megasoft Ltd (NS:MSFT) which engages in the research and development, production, distribution, and sale of chemicals and pharmaceutical products and has a market capitalization of a mere 514 crore.

Image Source: InvestingPro+

Before proceeding technically, it’s always better to see whether it is a junk stock or not, and for this, we look at the financial health score in InvestingPro. Any rating above 2 qualifies the counter for further analysis. In this case, a score of 3 out of 5 denotes its better-than-average fundamentals.

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Now on the technical front, the stock jumped to hit a 5% upper circuit at INR 73.15 on Friday, breaking above the falling trendline resistance on the daily time frame. This breakout has accrued after a short-term downtrend that continued from the first week of March 2024. This trendline has also been tested quite a few times which makes this breakout more interesting.

Any breakout when accompanied by volume makes it more reliable however, when the stock hits an upper circuit limit, the trading minimizes due to a lack of sellers and therefore the volume figure gets suppressed. Therefore in this case, we will not focus too much on volume.

It is a highly volatile counter and has already doubled in the past 1 year, therefore only high-risk traders should look at it. From the CMP of INR 73.15, the stock now holds the potential to rally to INR 82 which should be enough for swing traders. On the downside, if the stock breaks its nearest swing low of INR 66.7, then that can be a signal of a failed breakout and traders can look to exit their positions.

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