One Stock Can't Do It All

JC Parets
June 13, 2019

A week ago we outlined two major breakouts in the largest components of the Nifty Infrastructure and Nifty Public Sector Bank Indexes, however, we also outlined the waning upside momentum that remains a problem.

For premium members, we performed a deep dive into the Infrastructure space to provide trade opportunities outside of Larsen & Toubro, so in this post I want to summarize what we saw when performing the same exercise for Nifty Public Sector Bank components.

I think this one chart of the relative performance since January 1, 2018 summarizes what we're seeing well.

Most of the Nifty PSU Bank Index's components are not trending, particularly since last September. If there is a lack of trend in the entire sector, it's going to be difficult for even the largest stock to disconnect from them to make any sustainable move higher or lower.

Click on chart to enlarge view.

And that's exactly what's happening now.

The lack of participation from other stocks in the sector, as well as waning upside momentum in State Bank of India, gave this breakout attempt a low-probability of success from the start...so it wasn't too surprising to see sellers quickly take back control as prices moved above 355.

While this doesn't suggest State Bank of India can't eventually break out successfully, what it does tell us is that we should expect more chop in the near-term. Until the remaining sector components resolve their sideways trend in one direction or another, there's no reason to be making big bets in SBI or the rest of the space.

Patience remains best.

There's also a good lesson here about why having context around an individual security's move is an important part of our process...but I'll save that for another day.

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

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Allstarcharts Team

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