Covid Stocks Bounce Back

First, let’s look at the Nifty500 and Nifty50 charts to see where we’re at in this phenomenal rally. Both indices have been making new all-time highs every week, indicating that the positive trend is firmly in place. And they're in overbought territory, further alluding to the strong bullish momentum.

Click on chart to enlarge view.

In order to identify outperformers, we made a list of stocks that comprise of categories such as Hotels, Transportation and Entertainment. These are sub-sectors that have witnessed growing interest in recent times with people indulging in discretionary leisurely activities. We constructed an equally-weighted index of these stocks to get additional signals of strength in the selected counters.

This index has been making higher highs and higher lows since June, with more players participating in this move over the last two weeks. While the data we have on this particular custom index is limited, it provides a good perspective of pre and post-Covid levels of the stock universe we've chosen.

Now let's take a look at the stocks with the most well-defined risk and reward/risk at current levels.

Indigo has moved above its resistance of 1530 and is holding on to this breakout. The indicator is hovering close to the overbought level with the 200-day moving average sloping higher. We want to be long in this counter if its above 1530. A medium-term target of 2050 can be expected.

On a relative basis too, Indigo has outperformed this customized index and continues to hold its strong position.

Next on our list is Indian hotels. This stock broke above its resistance and is currently trading above those levels. With the RSI moving into overbought territory, the stock is displaying bullish momentum. We want to be long in Indian hotels if it stays above 122 for a target of 160.

Next up is Mahindra Holiday Resorts India Ltd that has formed a good base and has moved higher over the past few weeks. With the RSI reaching close to overbought territory and price breaking above resistance levels, we are bullish above 187, for a target of 254.

Going forward, we expect a good move in the stocks mentioned above as breadth continues to expand and propel the market higher. With that said, as the markets continue to rally...the trade ideas that fulfill our reward/risk ratio requirements are thinning out. But with sector rotation in place, a pause will help us in identifying future outperformers.

There are several other stocks on our radar that could potentially see a good move in the weeks and months ahead, but they are currently farther away from actionable levels and have thus been left out of this list for now.

To name a few, we have Lemon tree Hotels, Wonderla, Chalet Hotels and Delta Corp on our watchlist. We'll be sure to track this space for any updates on developing ideas!

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

Allstarcharts Team