[Premium] The Stocks We're Buying
If you didn't read yesterday's post, the conclusion was as follows:
To conclude, the evidence is mixed in the short-term, but long-term the weight of the evidence continues to suggest that buying stocks is what we need to be doing…specifically if prices are above 10,000 in the Nifty 50.
The most important aspect here is finding stocks showing relative strength and absolute momentum. By finding those names, we can put the probability of success in our favor, and more importantly, define our risk on the long side in case the market does fall apart again.
And in Part 2 of our Q2 Playbook, we outlined our views on each of the Nifty Sector/Thematic Indexes. Since we're looking for long opportunities, we'll be focusing on the areas that are outperforming and identifying individual stocks to buy within them.
To supplement this work at the index level, we've gone through and looked at the entire Nifty 500 by industry group and identified the stocks that have the cleanest breakouts and reward/risk. on an absolute basis After that, we narrowed down the list further by sorting that list by their relative trend to find the strongest names in each industry group.
Those are the stocks we want to be buying...and right now they're primarily in the IT, Fast Moving Consumer Goods, Pharma, and Fertilisers/Pesticides & Chemicals industries, so that's where we'll focus.
IT
First, let's start with the Nifty IT sector breaking out of a 14-year base relative to the Nifty 100, which we highlighted over two weeks ago. This suggests continued outperformance from the sector and is the reason we're looking for longs among its components.
Click on chart to enlarge view.
If TCS can break above 2,300, we can be long with a target of 2,790.
Infosys held support and just made new all-time highs. Any weakness towards 840 can be bought with a target near 1,070.
WIPRO Ltd. broke out above former support/resistance near 225. As long as prices are above that level, the bias is higher towards 339.
Mphasis Ltd. is breaking out. We want to be buying further strength above 1,065, with a target near 1,535.
If NIIT Technologies can break out above 1,670, then we can be long with a target near 2,675.
If Info Edge (Naukri) breaks above 3,140, we can be long with a 4,100 target.
Birlasoft Ltd. is a catch-up play, but if prices are above 90, we could see a double towards 220.
Oracle Financial Services Software is technically a Financial Services Firm, but given its software component, it is acting more like other IT stocks. As long as prices are above 2,700, the bias is higher towards 4,425.
Fast Moving Consumer Goods
Here's the Nifty Fast Moving Consumer Goods Index / Nifty 100 ratio we highlighted nearly three weeks ago. The failed breakdown and bullish momentum divergence thesis remains intact as long as prices are above 2.75, suggesting further outperformance from the sector.
Britannia Industries is a long if above 3,475, with a target near 5,610.
Dabur India Ltd. is a long if above 500, with a target near 780.
As long as prices are above 19,000 in 3M India Ltd., we can be long with a target near 30,100.
Hindustan Unilever continues to work higher. If prices are above 1,885, the bias is higher towards 2,540. Above that, the next major level of resistance is 4,000.
Nestle India Ltd. is a long above 15,700, with a target near 22,350.
Weakness in Tata Consumer Products towards 393 can be bought, with a target near 572.
Pharma
Here's Pharma, which we've been waiting to buy a pullback in since early July. It looks like this corrective period is over and its trend of outperformance is going to continue.
As long as Alkem Labs is above 2,300, we can be long with a target near 3,380.
Aurobindo Pharma is a long above 900, with a target near 1,440.
The Biocon breakout can be bought above 443, with a target near 584.
Granules India Ltd. is a long if prices are above 220, with a target near 312.
Natco Pharma can be bought above 700, with a target near 1,050.
Torrent Pharma is a long if prices are above 2,660, with a target near 3,590.
Divi's Labs is right on the edge of confirming a failed breakout. If prices can stabilize above 2,200, then the bias is higher towards 3,440.
Fertilizers & Pesticides and Chemicals
The last areas we're looking at are Fertilizers & Pesticides and Chemicals. In the former, there are many long-term bottoms potentially forming and in the latter there are a number of stocks sitting near all-time highs but have yet to break out.
Keep an eye on both of these areas in the weeks and months ahead.
Fine Organic Industries can be bought above 2,085, with a target near 2,765.
We can stay long Coromandel International if prices are above 740, with a target near 990.
The PI Industries breakout remains intact if above 1,600, with a target near 2,195.
Rallis India's breakout is intact if above 260, with targets near 338 and 460.
Overall, these are the strongest areas of the market and are where our focus should be on the long side. There are strong stocks in other industry groups, but from a weight of the evidence perspective, the areas above are where there are a cluster of strong stocks.
Additionally, feel free to review our Trade Ideas Page as some of the ideas we've outlined over the last few months remain intact and continue to work.
Thanks for reading and please let us know if you have any questions.
Allstarcharts Team