NEW DELHI: While benchmark equity indices are hovering around record high levels, as many as 52 stocks are showing signs of imminent weakness.
Momentum indicator moving average convergence divergence, or MACD has signalled downward crossovers – a sign of bearish undertone –on these counters, hinting at possible downsides in the days ahead.
Many of these stocks have also been witnessing strong trading volumes of late, lending further credence to the emerging trend.
Shoppers Stop Ltd.
Godrej Properties Lt…
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Stocks on the list include Tata Motors, Sterlite Technologies, Reliance Naval, Jaiprakash Power Ventures, Praj Industries, Bajaj Hindusthan, Delta Corp and Bata India. Also on the list are Jindal Stainless, Gayatri Projects, Apollo HospitalsNSE 1.81 %, Take Solutions and Aavas Financiers.
Some of these stocks are in news off late. Tata Motors’ global sales slipped 9 per cent in February. The auto major’s subsidiary Jaguar Land Rover has announced voluntary recall of 44,000 cars in the UK.
Sterlite Technologies was in the news amid concerns over softening prices of optical fibre and cable in China. The company later clarified it has limited exposure to China’s optical fibre market.
Reliance Naval shares have been witnessing a steady downturn, but the company told stock exchanges last week it had no clue what was going on.
MACD is the difference between the 26-day and 12-day exponential moving averages and is known for indicating trend reversals in traded securities or indices.
A nine-day exponential moving average called the signal line is plotted on top of the MACD to reflect ‘buy’ or ‘sell’ opportunities. When the MACD goes above the signal line, it throws up a bullish signal, indicating that the price of the security may see an upward movement and vice-versa.
Meanwhile, four stocks Godrej Properties, Shoppers StopNSE -0.96 %, Sastasundar Ventures and Crisil have witnessed upward crossovers, signalling bullish sentiment on these counters.
However, analysts caution that the MACD indicator should not be seen in isolation as it may not be sufficient to take a trading call, just the way a fundamental analyst cannot give a ‘buy’ or ‘sell’ call using a single valuation ratio.
Traders should use other indicators such as Relative Strength Index (RSI), Bollinger Bands, Fibonacci Series, candlestick patterns and Stochastic to confirm an emerging trend, they say.
As for the broader market, while the benchmark indices remain upbeat, technical analysts are advising traders not to go in for aggressive longs and use strict stop losses.
“Traders should avoid aggressive long positions at current level and look to book profits,” said Gaurav Ratnaparkhi, Senior Technical Analyst at Sharekhan.
Arun Kumar, Market Strategist, Reliance Securities, said one must use strict stop loss while venturing in this market.
Mazhar Mohammad of Chartviewindia.in says Nifty charts are looking weak.
“Sell signals on lower time-frame charts accompanied by a negative advance-decline ratio for the second day in a row on Monday signalled creeping weakness in the broader market. Sooner than later, we expect the current momentum to pave way for either a sideways move or a corrective swing towards the 11,230 level, which can be confirmed on a close below the 11,400 level,” he said.
A closer look at the stock chart of Sterlite Technologies reveals every time the MACD line has breached below the signal line, the stock has shown an downward momentum and vice versa. On Tuesday, the scrip traded 2 per cent higher at Rs 223 on NSE.