The Indian stock market has been consolidating after a sharp slide a month back followed by a strong bounce-back that reclaimed some of the losses even though the benchmark indices are a tenth behind their all-time high.
While the spectre of a sharp rise in oil prices due to the Russia-Ukraine war and likely impact on the Indian economy continue to be factors to watch out for, bulls have been trying to slowly push back share prices from what they believe was an oversold zone.
But there are many stocks that are potentially in the overbought zone given their positions on the technical charts.
Investors looking at charts and price and volume patterns have various parameters to decide whether a stock is ripe for the picking or is showing signals of weakness and is best left untouched.
We picked a metric called ‘dark cloud cover’, which refers to a candlestick pattern that serves as a bear signal. In simple terms, it means that a persisting uptrend may reverse into an upcoming downtrend.
It tracks a two-day bearish reversal pattern where the stock opens the next day at a new high then closes below the midpoint of the body of the first day.
We ran an exercise to see which stocks are under such a dark cloud cover and could in effect see a downtrend.
In total, there are 64 companies that fit the bill. Of these, nine are penny stocks with a market cap under Rs 50 crore and the share price in single or double digits.
The penny stock group has names like City Online Services, Natura Hue Chem, Catvision, India Lease Development, Citadel Realty, Kretto Syscon, Modern Steels, HB Estate Developers and Somi Conveyor Beltings.
Mid and large caps
There are as many as 17 companies with a market cap north of $1 billion that meet this criterion. These are IDFC, Manappuram Finance, NLC India, Bajaj Electricals, Asahi India Glass, L&T Finance Holdings, Federal Bank, LIC Housing Finance, REC, Power Finance Corporation, IndusInd Bank, SBI Cards, Vedanta, Bajaj Finserv, Adani Transmission, Adani Green Energy and Bajaj Finance.
The majority of the companies are in the small-cap space. Some prominent names therein include Patel Engineering, Wendt India, Grauer & Weil, Balmer Lawrie, Jayaswal Neco, West Coast Paper, IIFL Securities, Thirumalai Chemicals, Himadri Speciality Chem, Ingersoll-Rand, Zensar and Tejas Networks.