Bulls (i.e. FIIs) have been on the rampage for a while, with market indices scaling new highs regularly. All kinds of stocks are ‘getting discovered’ by those who could not or did not buy when indices were at lower levels.
Though absolute values of Sensex and Nifty are at their highest ever levels, the numbers need to be adjusted by the earnings of the index constituent companies. On P/E basis, indices are not overvalued yet because earnings have grown more than index levels in percentage terms.
The charts below will exemplify why investors need to concentrate on their own portfolios instead of getting excited about index levels. Each of the four stocks is at a different stage in the bull/bear cycle.
These are not buy/sell recommendations.
The stock was undergoing a bull market correction when news of the Ranbaxy acquisition hit the market. Ranbaxy is about the same size as Sun Pharma and has several pending quality issues. Integration of such a large acquisition will take quite some time, and may be negative for the stock in the near term.
The stock was trading sideways with a slight downward bias. The sudden price spike was on news of a possible share buyback. MACD and ROC are showing overbought conditions. RSI and Slow stochastic are showing negative divergences by failing to move higher. Some correction can be expected.
The stock has been in a bear market for quite some time, but the chart shows gradual accumulation since Dec ‘13. News of a good order book build-up propelled the stock price above its falling 200 day EMA on strong volumes. Note the negative divergence in Slow stochastic, which failed to rise higher. ROC and RSI are overbought. Profit booking is likely.
This stock was a favourite of the market once upon a time. It has been under the control of bears for 3 years. The recent price spurt – on news of a private placement by a tech. subsidiary – has failed to overcome the resistance of the falling 200 day EMA. ROC, RSI, Slow stochastic are overbought. Bears are likely to sell on the rise.