[Premium] It's Time, Here's What We're Buying

Last week we got lower lows in many of the major indexes and sectors, though fewer stocks made new lows and got oversold. This breadth improvement was confirmed today when many of these major indexes broke back above their former low.

This is what we've been waiting for to put cash to work on the long side again, so this post is going to provide the context I described above, updated risk levels for the major indexes and sectors, and the best reward/risk setups in individual stocks.

The Nifty 500 made a brief lower low on Friday and reversed strongly today to close back above the former low and support at 8,490. This confirmed the bullish momentum divergence and the bullish breadth divergences discussed below. As long as prices are above 8,490, the reward/risk is skewed in favor of the bulls with an initial target up near 9,000.

Click on chart to enlarge view.

Here is a view of the bullish divergence that formed as the lower low in price was accompanied by fewer stocks hitting 52-week lows or oversold conditions (RSI < 30).

Before we go any further I just want to reiterate that while this may mark "a bottom" in equities, we don't know if it is "the bottom". The good news is, we don't have to know. It's our job to manage risk, and the conditions discussed above suggest that we cannot be short as long as prices are above their risk levels. Since we can't be short, we can take advantage of these entries on the long side and see how they develop.

We could see these setups fail miserably and prices make new lows or we could see a rally that eventually leads to new highs, or something in between. It doesn't matter. We have to be erring on the long side here as long as these conditions persist. If they fail or we start meeting our upside price targets, then we'll reevaluate based on the new data the market's given us. For now, this is the market we have and we have to take advantage of the long opportunities it's presenting us with.

Now that I've explained our thought process a bit, let's move onto the Nifty 100 which has the exact same setup. If prices are above 10,460 we can be long with an upside target of 11,100.

Below you can see similar breadth divergences in the Nifty 100.

The Nifty Free Float Smallcap 100 has been the weakest of the indices, but is now showing signs of life. Prices made new marginal lows on Friday and quickly reversed, so as long as we're above 5,655 we can be long and adding to positions if prices can get above 6,100. Our upside objective here is near 7,250.

Again, even the weakest segments of the market are showing breadth and momentum divergences, signaling a potential short-term bottom is likely in.

The Nifty Free Float Midcap 100 did not make new lows, but as long as prices are above 16,030 we can be long with an upside target of 17,710.

The Nifty Next 50 is a long if prices are above 25,100, with a 27,950 target.

We can also be long the Nifty 50 if prices are above 10,050, with an initial target of 10,530 and a secondary target of 11,125.

In terms of sectors, the Nifty Financial Services Index is showing a similar setup. We can be long if prices are above 10,400, with an upside target of 11,375. You'll see in the individual stock setups below that there are many components from this sector on our long ideas list.

The Nifty PSU Bank Index is just messy, so we prefer to stay away from trading the index itself for now. With that said, there are several Public Sector Banks on our individual stock idea list at the bottom of the post.

The Nifty Infrastructure Index is another area we're seeing a lot of setups, but in terms of the index itself, we only want to be long if prices are above 2,795 and taking profits near 3,150.

The Nifty Auto Index is another area that's been hammered, but has potential for some mean reversion. If prices are above 8,650 we can be long and adding to positions if prices get above 9,105. With prices this far below the 200-day moving average, there's plenty of room for this counter-trend trade to run toward 10,400 if it can get going.

The Nifty Commodities Index looks similar to the Infrastructure Index. If prices can get above 3,400 we can be long with a target of 3,600.

If the Nifty Media Index is above 2,495, we can be long with an upside target of 2,845.

The Nifty Realty Index has been hit hard, but isn't showing much improvement in terms of momentum or breadth. While I wouldn't be short and think some mean reversion could occur if prices are above 195, I think there are better places to be on the long side.

Lastly, while a neutral approach toward the Nifty Pharma Index itself seems best, it's worth noting that it's the only sector where momentum didn't get oversold and there are several components that are on our list of individual stock ideas.

Below I'm going to outline the best reward/risk setups in individual components of the Nifty 500. They are grouped by Industry, so if you don't see a lot of a certain type of stock on here, it's because there's not currently a trade in it from our perspective. You'll notice many of these trades look similar to the indexes in that they are counter-trend mean reversion ideas or names that have a clear trend that we can take advantage of.

With that said, I did not include trade ideas that have been discussed in our latest conference call or posts from the last few weeks, so I'd encourage you to check the trade ideas page out as well, since many of the trade ideas in individual stocks are still in play.

While our risk is well-defined in the major indexes, there's still a lot of overhead supply that's going to limit the upside potential there. In the individual stock setups listed below, there's a lot more room for them to move before hitting potential resistance. If you're looking to play this bounce in stocks aggressively, the individual names will likely provide more beta than trading the averages themselves.

The last thing I want to say is that whipsaws are common near bottoms, so remember our thoughts on risk management and position sizing as we start to put capital to work in the market. If the market proves our thesis wrong, we'll have to get out of the way and reevaluate. We're not here to be right, we're here to make money.

If Apollo Tyres is above 194.25, we can be long with an upside target of 249.

If Maruti Suzuki is above 6,670, we can be long with upside objectives at 7,410 and 8,430.

If Jaiprakash Associates is above 6.02, we can be long to 9.30.

If GHCL is above 204.50, we can be long with a target of 253.50.

If Pidilite Industries is above 894, we can be long with a target of 1,095.

If Tata Chemicals is above 651, we want to be long with a target of 780.

If Ashoka Buildcon Ltd. is above 112.50, we can be long to 170.

If DLF Limited is above 160, we can be long with a target of 200.

If GVK Power & Infrastructure is above 6.93, we want to be long with a target of 10.75.

If IRB Infrastructure is above 124, we want to be long with a target near 184.

If NCC Ltd. is above 69.75, we can be long with a target near 101.

If Reliance Power is above 29.15, we can be long with a target of 35.50.

If PC Jeweller Limited is above 55.50, we can be long with a target of 95.

If Escorts Ltd. is above 550, we can be long and adding to positions above 648. Our price target is near 734.

If Reliance Industries can get back above 1,135, we can be long with a target near 1,550.

If Coromandel International is above 383.50, we can be long to 445.

If Gujarat State Fertilizer is above 99.15, we can be long with a target of 120.

If Bajaj Finance Ltd. is above 2,281, we can be long with a target of 2,755.

If Can Fin Homes Ltd. is above 217, we can be buying all weakness and taking profits near 318.50.

If Edelweiss Financial is above 149, we want to be long with a target of 215.

We want to be buying a breakout above 358 in ICICI Bank, with an upside target of 477.

If ICICI Prudential Life Insurance is above 332, we want to be long with a target of 363.

If prices are above 36.50 in IDFC Limited, we can be long with a 43 target.

If prices are above 111.70 in L&T Finance Holdings, we can be long with a target of 150.

If prices are above 97.30, we can be long with a target of 140.25.

If Punjab National Bank is above 69.70, we can be long with a target of 90.

We can be long Srei Infrastructure Finance Ltd. if prices are above 29.85, with an upside target of 40.50.

We want to own Syndicate Bank if it's above 31.15, with a 37.50 target.

If AIA Engineering is above 1,662, we can be long with a target of 2,235.

If prices are above 542.50, we can be long with an upside target of 740.

If prices are above 928.50 in Gujarat Fluorochemicals, we can be long with an upside target of 1,070.

If Reliance Naval and Engineering is above 11.58, we can be long with an upside target near 20.

If Texmaco Rail & Engineering is above 59.30, we can be long with a target near 79.50.

If Intellect Design Arena Limited is above 275, we can be long with a target of 383.50.

If Info Edge is above 1,425, we can be long with an upside target of 1,875.

If Tamil Nadu Newsprint & Papers Ltd. is above 242.50, we can be long with a target near 310.

If Jagran Prakashan is above 109, we can be long with a target of 143.50.

If Torrent Pharma is above 1,700, we can be long with a target of 2,030.

If Cipla is above 635, we can be long with a target of 745.

If Interglobe Aviation ltd. is above 811.80, we can be long with a 1,080 target.

If India Tourism Development Corp. is above 278.80, we can be long with a target of 345.50.

We can buy Shipping CP India on a break above 45.30, with a target of 56.

If VRL Logistics is above 259.50, we want to be long with a target near 310.

We want to be buying a breakout in Sterlite Tech Ltd. above 371.75, with a target of 561.

We want to be long Page Industries if prices are above 28,600, with an upside target of 40,260.

These are the opportunities we're seeing right now, but if you have any other setups that you'd like us to review, you know how to reach us.

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

Allstarcharts Team