[Premium] Q2 Playbook (Part 3/4)

Despite being in an environment where we want to be buying stocks for our timeframe, there are plenty of stocks that are underperforming and/or not participating on an absolute basis.

The purpose of this section is to outline the stocks we want to be shorting if you have a short aspect of your portfolio that needs to be filled, or in the event that the near-term risk management levels in the major indices break to the downside and a more defensive approach becomes appropriate.

It's also a good opportunity to identify the "weeds" in your portfolio if you're long any of these stocks we're selling.

Given the longer-term outlook for Equities as an asset class remains positive, we want to be very selective on the short side and take opportunities where the absolute and relative trends are both negative.

By focusing on stocks with more data pointing towards the downside, we can put the probability of success in our favor. That's why you'll also notice a lot of these setups are among the weakest sectors we outlined in Part 2.

With that said, let's get into the names.

We can be short Larsen & Toubro if below 975, with a target down near 705-725.

Click on chart to enlarge view.

Here's the stock breaking below a 14-year level of support/resistance relative to its Large-Cap peers.

We can be short UPL Ltd. if below 465, with targets near 378 and 250.

Here's UPL relative to the Nifty 50. As long as prices are below 0.044, the bias is lower towards 0.33.

Gail India Ltd. hasn't triggered yet, but a break below 96 would confirm further downside towards 70.

On a relative basis, the stock is stuck below support relative to the Nifty 50. As long as prices are below 0.103, then we'd expect new all-time lows.

Any strength towards 88.50 in Oil & Natural Gas Corp. can be faded, with a target back near 57.

Here's a longer-term perspective showing that prices are stuck below support/resistance near 105.

And on a relative basis, the stock is not far from making new all-time lows relative to the Nifty 50.

Here's NTPC Ltd. which we can be short as long as prices are below 100, with a target near 61.

And here's the stock making new all-time lows relative to the Nifty 50.

United Breweries Ltd. would trigger short if below 975, with a target back down near 760.

As long as prices are below 0.044 on a relative basis, then the bias is lower.

Interglobe Aviation remains stuck below support at 1,070. As long as prices are below that level, we can be short with a target near 775.

And on a relative basis, the stock continues to trend lower relative to the Nifty Next 50.

Apollo Tyres is failing at resistance near 121. As long as prices are below that, we can be short with a target near 77.50.

As long as prices are stuck below 0.008, then we'd expect continued underperformance from Apollo Tyres relative to the Nifty Mid-Cap 100.

We can be short Bata India as long as prices are below 1,390, with a target near 850.

On a relative basis, Bata India continues to correct relative to the Nifty Mid-Cap 100. Longer-term the trend is higher, but for now, there's still likely another 20-25% of downside until a major level of support is met.

Bharat Forge is a short if prices are below 385, with a target near 215.

On a relative basis, as long as stocks are below 0.026, then the bias is lower.

Sun TV Network Ltd. can be shorted if below 425, with a target near 270.

On a relative basis, prices are threatening to break below long-term support at 0.025. Overall this trend remains messy at best.

Some other stocks that look good on the short side, but do NOT check the relative strength box, are:

Jubilant Foodworks, which failed at resistance near 1,815. Any strength towards that level can be faded with a target near 1,170.

Although Financial Services stocks are showing relative strength, some stocks like LIC Housing Finance are at inflection points and look ready to explode in one direction or another. We're framing this as a short idea, but if prices break above 295, just know prices could move towards 385 quick.

With that said, if prices do break below 260, we can be short with a target near 190.

On a relative basis, prices are stuck below long-term support at 0.021, which is another reason we're looking for it to resolve lower.

Shriram Transport Finance is in a similar position. If prices are below long-term support/resistance near 800, then the bias is lower towards 450. With that said, if prices break above 800 then the squeeze is likely on and we do NOT want to be short.

Here's the stock's long-term relative performance recently making a new low and then reversing. This may spark some near-term mean reversion, but the primary trend remains lower.

Here's Hindustan Zinc stuck below 200. Prices could really get going to the downside if they break below 187, but overall, this short thesis remains intact as long as prices are below 200. Our target here is 125.

Wipro Ltd. may see some downside towards 198 and eventually 170 if prices stay below 225. Given the bearish momentum divergence, we think this failed breakout could spark the stock's next leg lower.

Given how long this post already is, we'll release part 4 with long ideas in the next day or two.

That's it for Part 3. Check out the Trade Ideas Page for a summary of the actionable ideas from this post...and be sure to read all four parts for our full outlook.

Read Part 1, Part 2, Part 3, and Part 4 for our full outlook, and please let us know if you have any questions.

Allstarcharts Team