Today we want to discuss two long ideas that might seem counterintuitive at first, making this both an actionable and educational post.
Let’s get into it.
First, let’s take a look at Pfizer Ltd. Despite the Nifty Pharma sector experiencing a correction over the last two months and several individual stocks resolving their consolidations to the downside as opposed to the upside, Pfizer is made a new all-time closing high last week.
One can look at this and take the perspective that if the other stocks are failing to break out and the sector, in general, is not performing well lately, then this breakout is likely to fail too.
Given the environment we’re in where there is a strong demand for stocks as an asset class, we’d prefer to view this as Pfizer Ltd. showing a massive amount of relative strength in the face of weakness in the sector. And that once the sector gets its act together, it will likely lead to the upside.
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Given how well-defined the risk is in Pfizer, we think the stock is worth a shot on the long side. If prices are above 5,025, then its recent breakout is intact and we can look for further upside towards 5,750.
Our second idea is Tata Consumer Products, which has been a leader in the Fast Moving Consumer Goods sector, which itself has been struggling over the last few months.
Prices met our upside objective in September and has been pulling back since, begging the question, when is the right time to get back involved?
It would be ideal if the stock pulled back towards 420 or even 393 to give us a really great reward/risk entry, but oftentimes the strongest stocks don’t give us a perfect entry. And current conditions suggest we may not get one.
Why? Downside momentum in the stock has slowed significantly over the last two weeks, suggesting that buyers could be retaking control and ready to start their next leg higher. Also notice how our momentum indicator (RSI) didn’t get oversold during this correction and is trying to turn higher despite prices making lower lows.
So what can we do with this setup? If prices are above last week’s lows of 458, then this short-term thesis of buyers retaking control will be intact and we can test the waters in the stock on the long side once again.
From a risk management perspective, we know that if prices break 458, then sellers are still in control and there’s downside risk towards the support levels we originally discussed (420 and 393).
Anyway, these stocks stood out during our weekend analysis and since our thought process might seem a bit counterintuitive at first, we thought it might add some value to you.
Let us know what you think! Are you approaching these stocks from the same perspective? or do you have a different view?
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