[Premium] Are Stocks Rolling Over Again?

November 26, 2018

During our members-only conference call and our trade management post we discussed why a more neutral approach is best as we identify whether equities are going to consolidate at higher levels or begin to roll over again. We also discussed the importance of taking some profits quickly in an environment that produces whipsaws in both directions.

Over the last two weeks we've seen a number of our long ideas failing and more of our short ideas working, suggesting that lower prices are likely ahead in the short-term and that we should continue to err on the short side of stocks. This post will outline some of the evidence we're seeing supporting this thesis, as well as adding a number of short ideas to our trade list from October and November.

Before we get into equities, let's take a look at interest rates and commodities. First off, we're seeing Indian rates falling over the last two months, which may be the market pricing in lower growth and inflation expectations going forward.

Click on chart to enlarge view.

We're also seeing a similar message from commodities, with base metals like Nickel failing to break out and instead falling sharply as momentum hits oversold conditions for the first time in roughly 18 months.

Crude Oil also remains under pressure, slicing through several potential support levels in the last few weeks.

There are very few setups on the long side of commodities and interest rates, both of which are suggesting lower equity prices may be ahead.

Getting into equities, we're seeing major indexes like the Nifty 500 trading above former support and quickly reversing lower. Momentum is also failing to get into overbought territory in all of these indexes.

We're seeing similar action in the Nifty Free Float Midcap 100 which has been flagging tightly below former support, but hasn't been able to break out yet or have momentum get overbought.

We're seeing a similar consolidation in the Nifty Free Float Smallcap 100 as momentum sits in its bearish range.

In my experience the longer that a high and tight flag takes to resolve, the less likely it is to be a successful pattern, so we're watching for a breakdown in prices from this multi-week range.

Additionally, many of our long ideas aren't following through. ICICI Bank was a vital part of the bull thesis, but just put in a failed breakout as momentum diverged negatively.

Havells India Ltd. was a trade idea that's worked for a few weeks, but is now starting to reverse before hitting our upside price objective.

Some trade ideas like Wipro never even got going, despite the evidence suggesting an upside resolution was likely.

With the signals we're seeing from interest rates, commodities, the major equity indexes, and our long trade ideas, it seems best to be erring on the neutral/bearish side of this market.

Many of the short ideas we outlined have been working, but these are a few more that are either actionable now or are likely to become actionable in the near future.

Bharat Electronics is a name we want to be selling if this bull flag breaks down instead of out. If prices are below 91.70, we can be short with a downside objective of 70.50.

We can be short LIC Housing Finance Ltd. if prices are below 464, with a downside target of 398.50.

We can be short Bank of Baroda if we're below 109, targeting 86.00.

We can be fading Bharti Airtel if we're below 337, with a downside objective of 282.50.

We want to be short Chennai Petro if prices are below 267, with a downside target of 144.

We can be fading any and all strength in Eicher Motors if prices are below 26,650, with a downside target of 21,100.

Equitas Holdings is a name we want to be shorting as it retests former resistance. If prices are below 111.75, we can be short with a downside target of 80.

Grasim Industries Ltd. is a name we want to be short if prices are below 877, with a downside target of 724.

We want to be selling Indusind Bank if prices are below 1,575, with a downside target of 1,285.

We can be short Jain Irrigation if prices are below 75.25, with a downside target near 47.

We want to be short Karnataka Bank on a break below 101.50, with a downside target of 69.

We want to be short Manappuram Finance if prices are below 81.25, with a downside target of 59.00.

We want to be selling any and all strength toward 85.20 in Mangalore Refinery & Petrochemicals Ltd., with a downside target near 50.

We want to be short NBCC India Ltd. if prices are below 61.00, with a target of 47.00.

We can be short Oil & Natural Gas Corp. if prices are below 158.50, with a downside target of 125.50.

If prices in Oracle Financial Services Software are below 3,390, we want to be short with a target of 2,795.

We want to be selling PTC India Ltd. if prices are below 85.50, with a downside target of 68.00.

We want to be short Sun TV Network Ltd. if prices break 578.50, with a downside target of 440.

If Tata Global Beverage is below 231.50, we want to be short with a downside target of 181.50.

We want to be fading all strength in Tata Motors Ltd. toward 200.50, with a downside target of 138.00.

If prices are below 534 in Tata Steel Ltd., we want to be short with a downside target of 402.

If TVS Motor Co. is below 567, we want to be short with a target of 433.

We want to be short Union Bank of India if prices break below 74.25, with a downside target of 42.25.

We'll continue to watch how this market develops and keep you updated if our neutral/bearish approach remains appropriate or if we need to adjust it as we head into year end. For now, these look like some of the most actionable setups on the short side, but you can find all of our setups on the trade ideas page.

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

Allstarcharts Team