Another day of weakness in small and mid-cap stocks while large-caps hold up well. Last week we discussed this two way market we’re stuck in.
In former posts we’ve discussed the need for Financial Services, Fast Moving Consumer Goods, IT, and Energy to trend higher in tandem for this market to gain traction. Luckily the weakest sectors like Autos, Metals, Infrastructure, and Media have a much lower weighting in the index or we’d be a heck of a lot lower.
Financial Services stocks also remain mixed, with the two remaining bright spots being Consumer Goods and IT.
Select Pharma names look good as well, including Dr. Reddy’s Labs which is breaking out again. In a universe of messy charts, when we find one with well-defined risk and reward/risk skewed in our favor we take it.
Click on chart to enlarge view.
In the case of Reddy’s Labs that means being long above 2,775 and taking profits up near 3,275. Momentum is overbought and the 200-day is rising, both of which support higher prices and increase our probability of success.
Any remaining shorts from the last few months are now meeting downside price targets or in the middle of our risk management levels and targets.
Given the global environment we’d still rather err on the long side of stocks anyway, so we’re focusing on names like Dr. Reddy’s Labs where our risk is well-defined and the reward/risk is skewed in our favor. We’ve outlined several other names we want to be buying for Premium Members.
This divergence between large and small-caps cannot continue forever, but until it resolves itself we have to work with what we’ve got. A hot mess.
Thanks for reading and let us know if you have any questions!