Two Stocks Testing Bulls' Patience

JC Parets
February 20, 2020

The near-term issues we're seeing in the broader market make this an interesting environment.

On the one hand, there's reason for caution as breadth and momentum concerns weigh on the leaders and major indices but on the other hand, there are still plenty of opportunities for those with short-term time horizons and those with longer-term ones. Our primary intermediate-term timeframe is where things get messy.

With that said, let's take a look at two stocks we discussed during our Members-Only Conference Call earlier this week as they test key levels with mixed results.

Here's Larsen & Toubro Infotech (LTI) failing to hold its new all-time highs as momentum diverges. This looks like a lot of stocks in the current environment, whipsawing around their former highs and our risk management level. If prices close below 1,965 then this failed breakout would confirm and suggest further consolidation is needed before the stock can move higher towards our longer-term target of 2,280.

Click on chart to enlarge view.

On the other hand, stocks like Crompton Greaves Consumer Electricals Ltd. have held above their former highs, successfully retested them, and are now continuing higher. These are the types of stocks we want to be focusing on in the current environment. Those that have proven themselves to have institutional support behind them and are offering a skewed reward/risk opportunity with well-defined risk.

This stock foots that bill, so as long as the stock is above 275 then we can be long with targets near 325 and 405.

The bottom line for the market is that if the major indices are going to find their footing and march to new all-time highs, it's going to take more stocks acting like Crompton Greaves and fewer acting like Larsen & Toubro Infotech. Failed breakouts/breakdowns and whipsaws have been the name of the game as of late and there's not enough evidence to suggest that our near-term cautious outlook needs to change.

For now, patience, smaller position sizes, cash/bonds, and sticking with the names that have proven themselves remain best.

We spoke about these two names and many more in our 150+ slide deck Members-Only Conference Call.

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

Allstarcharts Team

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