By Brijesh Bhatia
In investing, market cycles are inevitable. Whether in a bullish or bearish phase, investor sentiment and stock performance often shift with the tides of economic and market changes. During a bullish market, investors are drawn to stocks with strong upward trends, enjoying the thrill of the ride. But as the market turns, the mood shifts dramatically. Fear and caution take centre stage, prompting many to lock in profits and exit their positions.
But when the market resumes bullish sentiments, some stocks may continue to rise during a market reversal; others fall victim to changing tides. This article explores three midcap stocks that investors may want to avoid as the market resumes bullish sentiments.
1. Carborundum Universal
Carborundum Universal, a key player in the industrial materials sector, has garnered attention for its diverse portfolio, which includes abrasives and ceramics. These products serve different industries, including automotive, aerospace, and construction.
In technical analysis, a bullish trend is often marked by a consistent higher high–higher–low structure, a concept laid out in the Dow Theory. Carborundum Universal, however, is showing signs of a bearish reversal. The weekly chart reveals that the stock price has broken through a crucial upward trendline connected to the lows of 2020. This breach suggests a shift in momentum from bullish to bearish.
Carborundum Universal’s recent technical performance raises red flags despite potential market-wide recovery signals. Investors looking for growth in a reversal market may find the stock underperforming, as the change in trend is difficult to ignore. Therefore, it is wise to tread carefully with this one during the market’s transitional phase.
2. EaseMyTrip
EaseMyTrip, one of India’s leading online travel agencies, has been riding the wave of India’s expanding tourism market. The government’s focus on the tourism sector and EaseMyTrip’s easy-to-use platform have given the company a competitive edge, enhancing its fundamentals. With a growing middle class and rising travel demands, the outlook for the company in the long term is promising.
While EaseMyTrip’s fundamental story may be promising, the technical analysis tells a different tale. The stock is trading at a 52-week low, signalling potential trouble ahead.
An analysis of the weekly chart revealed that the stock price had breached multiple support zones, indicating a bearish trend. Particularly concerning is the recent breakdown in stock price, which has been followed by further bearish momentum, reinforcing the downtrend.
Recent technical indicators suggest that, even if the broader market regains its bullish trajectory, EaseMyTrip might struggle to keep up with the recovery. The stock’s price action reflects a significant amount of pessimism, making it one to avoid for those aiming to profit from a market reversal.
3. Kaynes Technology India Ltd (Kaynes)
Kaynes Technology, a prominent player in the electronics manufacturing services (EMS) sector, has been on an impressive growth trajectory. Specialising in design and manufacturing solutions for automotive, aerospace, and healthcare industries, Kaynes has carved out a niche in providing end-to-end solutions for electronic products.
However, Kaynes is showing signs of a significant shift on the technical front.
The stock’s weekly chart reveals a breakdown of a previously strong rising trendline, suggesting that the bullish trend that once powered the stock is now in decline. This breakdown is concerning due to the breach of a key trendline, and the stock’s velocity has been falling. The acceleration in the bearish momentum post-breakdown signals that the bears are currently in control, making it unlikely that the stock will bounce back quickly in a market reversal.
With a speed and intensity that suggest a potential extended downtrend, investors looking to capitalise on bullish movements should think twice before considering Kaynes during this phase of market reversal.
Exercise Caution in a Reversal Market
As markets have shifted gears from bullish to bearish in the last few months, investors must stay vigilant and adjust their strategies accordingly. While optimism may persist in the face of recovery post-Union Budget, certain stocks may be slower to rebound or could continue underperforming due to technical breakdowns. Carborundum Universal, EaseMyTrip, and Kaynes Technology India Ltd are three such stocks currently showing significant bearish trends, making them less favourable for investors during the market’s reversal phase. These stocks may be considered only if their breakdown fails or the stock prices forms the higher-high-higher-low.
Disclaimer:
Note: We have relied on data from http://www.definedgesecurities.com throughout this article. Only in cases where the data was unavailable have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta, and Edelweiss Securities. Presently he is an analyst at Definedge.
Disclosure: The writer and his dependents do not hold the Stocks discussed in this article. However, clients of Definedge may or may not own these securities.
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