The Top/Down approach to markets is at the core of what we do at All Star Charts. That means starting at the asset class level and peeling back each layer to refine our view of the smaller components that make up that asset class. With each new layer, we discover information that helps us form our weight of the evidence conclusion.
That brings us to our weekly column, The Top/Down Take, where we hope to educate readers on how we execute this process and highlight its value through the analysis of popular stocks.
Last time it was Tata Consultancy (TCS), but today the stock we’re looking at is Dixon Technologies which made new all-time highs this week.
First, let’s start at the asset class level with the Nifty 500 which is the broadest measure of India’s stock market we have. Prices recently broke out to new all-time highs above 10,000, reaffirming the long-term structural uptrend in the market.
Click on chart to enlarge view.
Now let’s take a look at the sector using the Nifty Fast Moving Consumer Goods (FMCG) Index. Prices are at sitting within a 2-year range near a flat 200-day moving average, signaling a lack of trend over the long-term. Until we get a breakout above 33,150, there’s little reason to be aggressively long this area of the market.
And here are prices on a relative basis crashing towards a potential support level as momentum diverges positively. While this doesn’t suggest a trend reversal is imminent, it does suggest we should look for prices to start to stabilize around this level. In our view, the reward/risk has shifted in favor of the bulls at current levels than the bears.
That brings us to today’s stock, Dixon Technologies. The stock is making new all-time highs despite weakness in its sector being a headwind for months. That’s the type of relative strength we want to be paying attention to. And on an absolute basis, there’s a rising 200-day moving average, momentum is in a bullish regime, and we have a well-defined risk level.
Now that the stock is breaking to new all-time highs after consolidating above support at 8,100 for several weeks, we want to be long above 10,300 with a target of 13,000.
And here’s the stock nearing all-time highs relative to the Nifty 500.
Along with new all-time highs relative to the Nifty FMCG Index.
The weight of the evidence continues to suggest Dixon Technologies is an attractive stock on the long side.
When a sector is underperforming the broader market as drastically as it has since April, we need to pay attention when one of its components is bucking that trend and making new highs.
That’s a sign of institutional support.
And with the sector trying to find its footing, stocks that were showing relative strength like Dixon Technologies should continue to lead.
We’ll be discussing more stocks like this in the FMCG Sector in Monday’s Members-Only Conference Call, along with the other themes we’re taking advantage of in the market.
Thanks for reading and please let us know if you have any questions!