This cycle continues year after year and more and more small investors get hold of dud shares. Only a few, who have done their homework, buy the right kind of shares and move out with a good profit.
So how do small investors tackle the problem of dud shares? The only solution to this is that they do some homework before entering the market. Whether the investor follows fundamentals ortechnicals, he must be disciplined in his approach and study before he jumps into the market. The following are a few points which he must consider before he enters the market:
The next criterion which the investor must look at is the sector. Pick up the sector which has bottomed out, i.e. a majority of the stocks within the sector has bottomed out.Then look out for the strongest stock within the sector. Today, I will take a look at the auto ancillary sector which is sub-divided into a number of groups. Many stocks in this sector have bottomed out.Autolec Industries
Autolec Industries went into a major uptrend in May 1999 after bottoming out and crossing its earlier intermediate top for the first time since 1996. It is also the first time that the relative strength line for the stock moved above its zero line, suggesting that the stock is outperforming the indices. Though volumes in this sector have improved, they are still quite thin and will have to improve in the coming weeks. The stock has been staying above its 30 WMA and the next correction towards its long-term moving average 30 WMA will be the testing time. If the stock continues to stay above its 30 WMA when the weekly momentum indicators for the indices signal a sell, higher levels will be seen in the stock. The relative strength line must also be watched during the next correctionby the weekly indicators.
Banco Products
Banco Products crossed its earlier intermediate top in June 1999 and saw an uptrend. However, the relative strength line which has been moving up is still below its zero line which means that the stock is underperforming the indices. The stock has not seen regular trades in the past one year and traders must keep this in mind. Thus, even though there is an uptrend in the stock, traders must stay away for some more time and buy only when the trading volumes improve. Thin trading volumes make it difficult for the trader to get out of the market easily.
Mico
Mico exhibited ascending intermediate tops in June 1999 and saw a major uptrend. However, the stock's relative strength line is quite weak, suggesting that the stock is underperforming the indices. Thus, investors must stay away from such stocks which are in a major uptrend but continue to underperform the indices. Allow the relative strength to improve first and this will also improve yourbottomline. Once the relative strength line moves above its zero line, it usually stays above the zero line for quite a number of years. Thus, traders must take a look at the relative strength line first and must next look for other indicators.
Ucal Fuel Systems
Ucal Fuel Systems crossed its earlier intermediate top and went into a major uptrend recently. But its relative strength line is below its zero line, which means that the stock is underperforming the indices. Thus, what we are seeing in the auto ancillary sector is that there are many stocks which are in a major uptrend but their relative strength lines are still below their zero lines. This means that even though a stock is in a bull run, the chances of it dropping back are large and investors must keep this in mind. Pick up stocks which have a bullish relative strength line only. The trading volume of the stock is quite moderate but with the relative strength line weak, investors must wait for some more time.
Sona Steering
SonaSteering bottomed out in June and went into a major uptrend. There was a rise in the relative strength line in the stock and it is now very close to its zero line and will soon cross it. If this happens, it will be the first time for the stock since 1995. This also means that its performance is now better than the indices and there has been an improvement in the trading volume. Keep a watch at the stock in the next intermediate decline.
ZF Steering
ZF Steering bottomed out in June and went into a major uptrend by moving past its earlier intermediate top. The next thing the investor must look at is the relative strength line and the relative strength line for the stock has been staying below its zero line which means that even though the major trend of the stock is up, the stock is underperforming the indices and though investors must keep this in mind, they must keep track of the future as the relative strength line has been moving up and a buying opportunity in the stock will come upsoon.
Sundaram Clayton
Sundaram Clayton went into a major uptrend in February 1999 and has been exhibiting rising intermediate tops and bottoms since then. The relative strength line for the stock is above its zero line but has been moving sideways which means that the stock's performance is the same compared to the Sensex. If this performance deteriorates, then the relative strength could fall below its zero line. However, if the performance improves, more long positions in the stock can be added in the next intermediate downtrend when the stock pulls back towards its 30 WMA.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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