While NIFTY is not giving much of big moves these days, there are sure some wonderful stocks to trade which are giving robust moves. Rallis was an example of it. How to identify such potential stocks in the universe of listing we have on the NSE or BSE.
This is where the Sector classification and Industry classification plays the most important role. We need not scroll through the charts of every stock to find the one which are strong and then take a decision to trade. Instead, we shall first do an analysis of the broadest classification, the Sectors. We have 10 major sectors n any economy. On scrolling through those charts we will come to know of which sector is having the strength and which of them lags or is in negative zone.
By doing this we eliminate a big chuck of stocks which would fall into the sectors which are weak. From the ones identified as strong Sectors, we go one step forward to check with the sub-sector groups of the Sectors to find which mirrors the patterns of the Sector charts. Once a sector is strong does not mean that all the sub-sectors or industries falling into that category are strong.
A live example is the HEALTH CARE sector in the present market. The sector chart shows bearish divergence, while its sub-sector Hospital Equipment and Services is very strong. Scanning the sub-sectors will further eliminate the weaker ones. Next from here, we check with the Industries that comprise the sub-sectors.
After pulling out the best and strong industry groups, we then go in further to check with the list of stocks comprising that Industry. In that we will get the super strong stock. It does not mean that the leader of the industry should move while its index moves up. A recent example is of BHARTI and RCOM. While BHARTI is the leader of the Telecom Services Industry, it did not give big moves the present run whereas the stock has tanked by more than 4% on Thursday. RCOM being the 3rd top in the Telecom Services Industry was the strongest. At the time of entry signals. RCOM had an above 4 times Risk/Reward potential while BHARTI was lagging at close to 2. This was confirmation that RCOM was the strongest.
Today it holds, RCOM is still positive at 170 levels, getting long entry at 161.50. Whereas BHARTI has turned neutral at 300, giving just close to 5 points in the present long position.
The top performing industry of this week is Pesticides and Agrochemicals. RALLIS is the stock that pulled up this index. This stock is close to its target. With the amazing strength that this stock moved up has made its industry index reach another peak, giving further uncharted territory to be captured.
Paper Industry was the second, but this industry has already retraced bearish divergence on the weekly charts. All the current moves are adding up bearish strength to the stocks comprising this list.
The top performing Sector this week was BASIC MATERIALS and both our Pesticides and Agro Chemicals and Paper Industry groups are part of this Sector. These two industry groups coupled with Non-Ferrous Metals, Steel Strips and Fertilizers were helpful in this sector Maintaining lead this week.
The weakest Sector this week was TELECOM and the credit for making this Sector the weakness goes to BHARTI AIRTEL. Telecom Equipments, one of the industry groups forming this sector was marginally weak. This industry group chart has very high bullish strength. Any weakness here is an opportunity to add or get into new long positions. SIEMENS is a star performer in this group. Watch out SIEMENS, it is a very good pull back buy candidate.
By going through the charts in this manner we were able to identify some good stocks with high risk/reward potential. Do not just buy into these stocks just after reading here. Please spare your time to analyze them individually, satisfy yourself about their inherent potential and risk. Only then punch your orders to buy.
Not only here, any tips or stock suggestions for that matter should go through your screening process before taking a position call. The person giving you the suggestion might be a highly experienced person, only he would know the reason behind the buy or sell. That would not satisfy you while you have risked your money.
Would you go into the Boxing ring to fight against Mike Tyson just like that without preparing yourself? The same way it is with trading too, prepare your mind with what the stock is likely to do. That would build confidence. There is no holy grail in the market. It is only discipline and confidence that goes a long way in making you wealthier in the markets.
This week's stock list for your analysis basket.
ADORWELD, buy above 174.95 with a stop of 167.95 for a target of 205.95.
CORAMANDEL, buy @311 with a stop of 303.85 for a target of 338.75.
NFL, buy above 100.80 with a stop of 97.80 for a target of 149.00. (High potential)
ABGSHIP, buy above 261.4 with a stop of 250.95 for a target of 320.80.
TATACOM, buy above 284.80 with a stop of 279.60 for a target of 324.70.
All these are our observations, we once again request all those who intend to take position in these stocks to satisfy themselves in and out and only then take positions.
Too much of anything make it bored. So we shall stop here for this week.
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