[Premium] Vulnerable Nifty Next 50 Stocks

JC Parets
June 22, 2018

One of the most valuable parts of our research process in the US is our multi-timeframe analysis of the Dow 30 components. By analyzing 30 of the largest companies in the US markets we can quickly gain an understanding of the index's underlying trend and which sectors are showing relative strength and which are showing relative weakness.

In India, we perform the same exercise with the Nifty 50 and Nifty Next 50. Over the last few months we've pointed out the weakness in mid and small-cap stocks, but more recently our analysis of the individual stocks within the large-cap indexes has started to suggest that this weakness may be spreading. Yesterday we talked about weak stocks in the Nifty 50, so today we're going to perform the same exercise with the Nifty Next 50.

Idea Cellular Ltd. is the first name on our list because of its poor long-term relative strength. It broke down from a 1.5-year range below 65.75, which suggests it's headed back down toward its all-time closing low of 36.70.

ABB India Ltd. is breaking support near 1,245. As long as prices are below that level, we want to be sellers of the stock and looking for it to test potential support near 1,020.

Bank of Baroda is completing a rounding top by breaking down below support at 129. As long as prices are below that level, our downside targets are at 109.25 and the 2013 lows of 85.90.

Bharat Electronics has been in a downtrend for the entire year. This is a great example of a stock showing relative weakness. We want to be selling strength in this name long as prices are below 130.50, with a downside price target of 91.50.

Bharat Heavy Electricals Limited is breaking down from a 2-year range and is headed back toward its all-time lows near 60 if prices are below 78.75.

Bosch Ltd's 3.5-year range is breaking down, which suggests further downside is likely. If prices remain below 18,060, our next downside targets are at the 2016 lows of 15,750 and the 161.8% extension of the 2017 rally which is down near 13,650.

Cummins India is beginning a new long-term downtrend by breaking its 3.5-year range to the downside. As long as prices are below 747.50, we want to be selling any strength in this name toward broken support with a downside price target of 533.

LIC Housing Finance Ltd. began a new downtrend in late 2017 and is in the middle of our risk management level and downside price target. As long as prices are below 550.50, we want to be selling strength and taking profits on shorts down near 398.50.

Motherson Sumi Systems Ltd. has been consolidating near 52-week lows for the last few weeks. If prices break below 301 we want to be sellers and looking to take profits near our next downside price target of 264.75.

NHPC Ltd. has completed a rounding top pattern by breaking below support at 27.30. As long as prices are below that level we want to be selling strength and covering down near 22.80.

NMDC Ltd. isn't actionable yet, but if we get a break below the 2016 lows of 103.25 in the coming weeks and months, then the stock looks vulnerable to retest the 2016 lows near 75.

Petronet LNG is another name that requires patience, but if/when prices break below 201.90 we want to be short and looking to cover near 156.

Pidilite Industries is a stock that's been in an extremely strong uptrend, but confirmed a failed breakout by closing below 1,096 and now looks vulnerable to retest former support near 895. While we want to focus our short efforts on the weaker names on this list, we've added this to reiterate that even some of the market leaders are succumbing to selling pressure.

Punjab National Bank is one we tried on the long side for a mean reversion, but that quickly failed and prices are now continuing lower. As long as prices are below 93, the stock looks like it will retest its all-time lows near 70.

Rural Electrification Corporation has been in a downtrend for about a year now and is consolidating near 2-year lows. As long as prices are below the the March lows of 121, we want to be fading strength in this name and taking profits at our next downside target of  86.50.

Shree Cement is another name beginning a new downtrend after breaking a year-long consolidation to the downside. As long as prices are below 15,800 we want to be short and taking profits near former support and resistance at 13,275.

The last name on our list is Siemens India Ltd. which is sitting at 2-year lows and looks vulnerable to break its 3-year range to the downside. If prices break 965.50 we want to be short and taking profits near 775.

The Bottom Line: Our list of short setups in Nifty Next 50 stocks is nearly double the size of the Nifty 50 list, confirming that even large-cap stocks are experiencing the weakness we originally saw in the small and mid-caps indexes. In addition to the relative weakness our Nifty 50 analysis revealed in sectors like Energy, Metals, Telecom, Cement & Cement Products, & Fertilisers & Pesticides, the Nifty Next 50 is showing us weakness in Financial Services, Industrial Manufacturing, and Autos. As I stated in the earlier post, we originally thought that mid and small-caps would play "catch-up" to the large-caps which were showing relative strength, but the evidence is mounting that the large-caps may "catch-down" instead.

In this type of environment where many of our upside price targets have been met and we're seeing more and more downtrends emerge, we want to continue to be selective on the long side and look to take advantage of opportunities on the short side in some of the weakest sectors. The names above and those discussed in our Nifty 50 post  are a good start in doing so as our risk is very well-defined and the reward/risk is skewed in our favor.

For analysis of the any other large-cap Nifty 50 and Nifty Next 50 stocks not discussed in these posts, please visit the updated chartbook page.

Thank you for reading and please let us know if you have any questions.

Allstarcharts Team

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