Similarity between stocks, India T20 World Cup win? Virender Sehwag answers

What’s the similarity between stocks and India’s T20 World Cup victory? 

Are you still scratching your head?!

In a post on X (formerly Twitter), India’s former cricketer and a swashbuckling batsman Virender Sehwag said that Team India, like stocks, has broken out of a consolidation range. The Indian cricket team, like stocks, he said, had been facing a resistance for years and had been unable to get past the finish line in ICC trophies.

"Like in stocks, there is a breakout after consolidation in a range, where after resistance for years there is a multiyear breakout and it reaches new highs, I have a feeling that this is a breakout win for us. For years, we have played well, been consistent in a range, consolidated but not able to get past the finish line resistance in ICC trophies, yesterday i believe is a 13 year breakout for our team and with this win, I think we would be winning many ICC trophies consistently in the years to come," Virendra Sehwag said in a post on X post India's World Cup T20 win over South Africa in Kensington Oval on Saturday, June 29.

 

Typically in a consolidation phase in the stock market, a stock or an index trades within a specific range, between the 'support' and resistance' levels. The price reverses from specific lower levels -- the support -- and faces selling pressure at higher levels -- the resistance. This scenario, by and large, defines consolidation.

During a consolidation phase, the stock trades in a certain range with subdued volumes. It faces selling pressure on the upside, near the same levels where supply was witnessed earlier. Similarly, when the price corrects, the counter rebounds from the levels where buying emerged earlier. Volumes stay low, barring a few swings that can be overlooked.

Technical indicators like RSI and MACD show sideways movement during this phase of the markets. 

Technical indicators are one tool to identify the direction, strength and momentum of the trend. The indicators' inability to trend in any specific direction depicts a consolidation phase.

At a time when the stock or an index is consolidating, one can often spot candlestick patterns like Doji, Spinning Top, and Hammer on the technical charts. Usually, on a breakout, a large candlestick is seen with robust volume, visualizing that a breakout is in progress.

That said, investors should be mindful that unless there is a breakout in the stock or the index with definite consecutive closes, they should not be too quick to 'confirm' a trend.

A stock's major outlook can be easily studied on its monthly chart. When the stock price breaks out of a consolidation phase, one can expect a strong move for a long period of time. Simply put, longer the consolidation phase of the stock or the index, the bigger the likely price move.