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Last Updated : Apr 03, 2020 08:03 PM IST | Source: Moneycontrol.com

The Market Podcast | Indices yet to hit bottom; seek solace in pharma and consumption stocks

A follow-through signal doesn’t mean investors should go and buy with abandon. It just gives you the go-ahead to choose high-quality stocks with strong sales and EPS growth as they break out of their bases.


Selling pressure by foreign institutional investors is likely to continue for some more time on Dalal Street but investors can look for opportunities in this market fall, Mayuresh Joshi, Head of Equity Research India, William O'Neil India said in a special ‘Market Podcast’ with Moneycontrol.

Earnings hit is going to be very severe for a lot of industries facing the heat whether it is aviation, hospitality stocks or movie exhibitors, and most likely these stocks are going to feel the pinch in terms of downgrades, said Joshi.

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He advises investors to bucket in two groups. Till that time COVID-19 led uncertainty remains, pharma and consumption stocks which have leadership positions have certain elements of a margin of safety.

“And, as the curve starts falling and we move past Q1, these high beta co-related sectors and stocks which have leadership positions will come into focus again,” says Joshi.

Have we made a bottom? Track Follow Through Day

In recent times, the Nifty50 has corrected by over 33 percent from its all-time high of 12,431. However, it staged a follow-through day on March 31, 2020.

If history is to be believed, this may not be the bottom of the market. Joshi expects the index to make another one or more lower lows.

It is difficult to identify the start of a major stock market uptrend if you are relying on headlines and news. By the time reporters figure out what’s going on in the stock market, the best part is over.

MarketSmith India, a research report by William O'Neil India has defined set of rules to identify the upturn in the market. It will remove any personal judgment. It relies on a follow-through day (FTD), a device identified by historical research.

A follow-through day occurs if a benchmark index (Nifty in our case) delivers a strong gain (1.5% or higher) on a volume higher than the previous session. That big gain on rising volume is a follow-through day, which confirms that a new uptrend is underway.

A follow-through day can’t pick the exact day when a market bottoms, but it can get you close to the bottom. The most powerful follow-throughs usually occur on the fourth to the seventh day of an attempted rally.

There will be cases in which confirmed rallies fail. A few large institutional investors, who have large funds, can run up the market on any particular day and create an impression of a follow-through.

Hence, a follow-through day should be used in conjunction with other indicators to provide firm evidence. One of the other indicators is simply to check if there are fundamentally good stocks breaking out of sound bases.

A follow-through signal doesn’t mean investors should go and buy with abandon. It just gives you the go-ahead to choose high-quality stocks with strong sales and EPS growth as they break out of their bases.

William

(Tune in to the podcast for more)

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Apr 3, 2020 06:06 pm
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