Price, oscillators: Two ways to identify stocks that are likely to fall

While trading or investing, timing is everything. While most market pundits and savvy investors give out tips on what and when to buy, the ‘sell calls’ are often missed. Both the components – the time to buy and time to exit a position are significant and have a bearing on the money/return you make.

Over the last 12 months, Indian equities have been facing double whammy in the form of economic slowdown and stress in the financial sector. Since the IL&FS crisis in September 2018, the financial sector has continued to see elevated stress across non-bank finance companies (NBFCs)/housing finance companies (HFCs). This had also spread to the banking sector, where many leveraged companies has become an area of concern. Economic indicators, too, slumped with GDP estimates being revised down meaningfully.

While most experts say the overall trend for the markets in Samvat 2076 remains bullish, they caution against volatility arising from domestic and global events. The three key factors to watch out for would be reducing stress in financial sector, further stimulus announcements by the government to boost consumption and overall economic growth and resolution of US-China trade war.

How to identify a weak trend?

As regards spotting trends, there are two ways to identify stocks showing weakness. One is on the price itself and other is oscillators or momentum. The price-based study involves several chart formations, including Head and Shoulder, Double Top, Rising Channel Breakdown, Triangles and Rounding Top.

Even Candlestick patterns help to determine moves that the stock is likely to make in the sessions ahead. Some of the popular and widely used Candlestick patterns include Bearish Engulfing pattern, Bearish Harami, Bearish Harami Cross and Bearish Dark Cloud Cover. A gap-down close indicates selling pressure, which if not filled soon, can take the stock down further and dent the overall sentiment.

Trendline also plays a crucial role. A break in the trendline on strong volumes breaks the positive sentiment. The Moving Averages also help in determining the medium-term outlook for the stocks, while a Crossover decides the trend that can significantly influence the direction.

Here are a few stocks that are showing weakness on the charts. Such counters are vulnerable to a fall in the coming sessions on various technical grounds.