Adani Enterprises is locked in at a 20% upper circuit, sharply stepping up from the bottom

The entire Adani group is in discussion in today’s session, but this time it is because of its ‘dark green’ stocks. The mood of the market participants in the shares of Adani Group has taken a U-turn today. As of 10:46 AM IST, Adani Enterprises (NS:ADEL) closed at INR 1,887.2 on 20% upper circuit, reversing bullish downside from the downside. The magnitude of the reversal is almost as fast as the momentum of the previous decline.

In my previous analysis of Adani Enterprises, caution was clearly advised against going short at these highly oversold levels. On February 3, 2023, the stock formed a hammerhead pattern on the daily chart, which is a reversal pattern, indicating a declining downtrend. This pattern, and that too with a green colored real body, was an even more convincing signal of the bears losing hold on the downtrend before and after.

Now, as extreme volatility is still in place, a reversal from here should not be taken lightly. All the bulls were trapped on the way down, now is the time for the bears to panic. From here the rally can get a boost from short covering as well and not just from fresh longs. Since there were a lot of shorts in the system due to a severe downtrend, these bears will now run for cover and their buying will act as a catalyst (to close the existing shorts).

Even with a very conservative estimate, the stock has the potential to climb further to INR 2,200-odd levels which is almost a 50% retracement from the dip from Jan 25, 2023 to Feb 3, 2023. There’s virtually no stop-loss level, all thanks to the stock’s mind-boggling range at the present time. Therefore, it is better to trade with hedged positions that will allow you to digest extreme moves in either direction.

That being said, the broad trend of the stock should not be considered positive. The current up move is just a counter-trend rally due to the highly oversold condition of the stock. The chart structure is still pointing down and I believe equity investors will try to exit at all possible levels which will keep the stock under pressure for a prolonged period. To conclude, the ongoing rally needs to be played with a very short term outlook in mind.