These Stocks Offer Clues Into Broader Market's Direction
First, let's analyze a leading stock and set expectations for what we'd like to see. Here we have Siemens India Ltd. sitting in the middle of its breakout level and our upside price objective. From an absolute price perspective, we'd prefer to see it digest gains through time and flag tightly at current levels, but at the very least we'd like it to successfully retest its breakout area with momentum staying out of oversold territory.
If we start to see leading stocks break down and confirm a failed breakout, then we have to question what type of environment we're in. For now it's one where we want to be buying dips in stocks like Siemens.
Click on chart to enlarge view.
The other group of stocks we want to watch are those that are broken from a structural perspective. The logic here is that if the weakest stocks are not getting sold down, then we're likely in an environment where there's strong demand for Equities as an asset class and should be erring on the long side.
So far, that's been the case.
Here's Hindustan Zinc hanging out below broken support at 230, not seeing any downside acceleration yet. Right now it's in no man's land and sellers remain in control, but the longer they take to move it lower the more suspect this breakout looks.
The same concept applies to Bharat Heavy Electricals Limited. It broke down from a multi-year range a few months ago and is now retesting broken support with momentum in a bearish range. If sellers are really in control, they should step in here and take it lower...but if prices get back above 60 they're in trouble.
Others like Apollo Tyres have experienced mean reversion back towards broken support and are being sold into. This is the type of action we'd expect to see from the worst of the worst stocks. Instead, we're seeing more and more names in the Nifty 500 stabilizing at their downside price targets and long-term support, reaffirming that this is not an environment where we want to be shorting stocks aggressively.
While the major indices digest their gains we're watching these names and others under the surface for clues as to which way Equities as an asset class are going to continue.
Our bet is higher, but we'll continue to weigh the evidence as it comes in.
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Thanks for reading and let us know if you have any questions!
Allstarcharts Team