In this quick post, we’re looking at two widely-followed stocks that we want to be avoiding, each for their own, but similar reasons.
Let’s get into it.
Havells India Ltd. was a leading stock in the Consumer Goods space, breaking out in mid-2016 and continuing its long-term trend higher for three years. In July, we saw prices break back below our risk management level of 715 and momentum shifted into a bearish regime for the first time in more than 2.5-years.
Click on chart to enlarge view.
Since then prices have been consolidating between 630 and 715, unable to get back above that resistance level and it’s now resolving its range to the downside. This confirms its shift from a sideways trend to a downtrend and suggests to us that we want to be avoiding the stock on the long side. In the near-term, as long as prices are below 630 then there’s risk down towards 555, and structurally the stock remains broken until prices get back above their initial resistance level of 715.
Another stock that has been broken for a long time is Indiabulls Housing Finance Ltd., which recently tested its 2013 lows and bounced significantly. This has a lot of people asking, has the trend shifted from down to up? For now, our answer remains that prices are now in a sideways range with resistance near 350-360 and support near 205-215. Until we get back above that level of resistance, the series of lower highs and lower lows in price remains intact and we want to continue erring on the side of caution.
This could very well be the beginning of a long-term trend change in Indiabulls Housing Finance, but there isn’t enough evidence to support that thesis just yet. How prices work through this overhead supply (or fail to) will tell us a lot about how to approach the stock going forward.
There are a lot of stocks we want to be buying in this environment, but these two are NOT included in them. We’ll continue to monitor them in the weeks and months ahead for any changes and keep you updated as the weight of the evidence changes.
Thanks for reading and let us know if you have any questions!