Adani share price crawled back modestly on Monday after the company published a lengthy rebuttal to a short-sellers report. The stock rose by more than 2% and reached an intraday high of 3,050 INR, which was a few points above last week’s low of 2,718 INR. It has crashed by over 31% from the highest point this year, bringing Gautam Adani’s net worth has plunged by $27 billion to about $92 billion.
Overvalued and highly-risky
Adani Enterprises share price has been in the spotlight in the past few days after Hindenberg Research published a lengthy investigation about the company. The short-sellers report focused on the company’s valuation and the fact that it relied on complex financial engineering to boost its share price. It concluded with a series of 88 lengthy questions that the short-seller wanted answered about the company.
Adani Enterprises, which is gearing towards a share sale this week, published a major rejoinder of the concerns raise by Hindenberg. The lengthy report addressed most of the questions that the hedge fund asked. It then concluded that the report was in bad taste, poorly researched, omitted some key facts, and was an attack on India itself.
For example, on the issue of why Adani chose Mornach Network, the company said that the suspension alluded to happened a decade ago and that the company had gone ahead to win an award by the NSE. The company also said that it had no business relationship with Jatin Mehta, an individual who had been mentioned several times in the short-seller report.
Still, the main issue with Adani is that the company is extremely overvalued and has a mountain of debt. This is in line with what I wrote in 2022 when I compared Reliance Industries and Adani. At the time, I concluded that Reliance seemed to be a better investment because of its conservative leverage and cheaper valuation.
Adani share price forecast
The weekly chart shows that the Adani stock price has had a spectacular rally in the past few years. This chart sends a picture of a stock that soared too fast and too soon. And most recently, the stock formed a double-top pattern whose neckline was at 3,120 INR (October 3 low). A double-top is one of the most important reversal patterns.
The stock has moved below the 23.6% Fibonacci Retracement level and is now nearing the 38.2% retracement point. It has also crossed the key 50-week exponential moving average (EMA) while the MACD has formed a bearish crossover. Therefore, the stock will likely continue falling as sellers target the 50% retracement level at 2,110 INR, which is about 27% below the current level. The stop loss of this trade will be at 3,242 INR.
Adani stock price 4H chart analysis
Turning to the 4H chart, we see that the Adani stock price has been in a strong bearish trend in the past few weeks. Unlike on the weekly chart, it has already moved below the 50% retracement point and 3,135 INR, the lowest point in October last year. The shares have formed a head and shoulders pattern and moved below all moving averages while the Relative Strength Index (RSI) has formed a bearish divergent pattern.
Therefore, I suspect that the current rebound is a dead cat bounce, which will see the stock continue falling in the coming months. If this happens, the key level to watch will be at 2,000 INR.