Month: April 2021

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Avoiding mistakes in a volatile market

Mistakes are plentiful during volatile markets. Avoiding mistakes in a volatile market is essential to ensure to
ensure one keeps their hard-earned cash intact.

Buying before a base completes

During the recent volatility, many stocks breached, some pulled back to their respective 50-DMA or 200-DMA. To
some traders, long-term support was a buying opportunity. The key to making money in the market, though, is
waiting until a base completes before buying. In most cases, stocks that pull back to their 50-DMA or 200-DMA do
so amid signs of institutional selling. Wait for the stock to prove itself, and look for signs of institutional buying as
the stock builds the right side of the base. Then you have a legitimate base.

Buying every possible Breakout

Bullish stock charts tempt investors all the time during down markets. Some growth names will hang in there with
compelling charts. A Breakout may work for a while, but it will likely be short-lived. While stocks that hold up the
best during down markets can go on to be the next leaders, they still should not be bought in volatile markets.

Keep holding a stock or even averaging down

A stock trades at Rs 100 a share. Your cost basis is Rs 100. The stock heads lower, and you buy an equal amount of
shares at Rs 80, lowering your cost basis to Rs 90. Then you add further at Rs 75 after it breaches its 50-and [200-
DMA]. The problem is that you're averaging down in a former leader that's under tremendous institutional selling
pressure. You will be doing some serious damage to your portfolio. It rarely makes sense to buy a stock that has
the potential to spiral lower before finally hitting its bottom.

Buying low P/E stocks

The price-to-earnings ratio is a common valuation tool. But buying/selling decisions based on P/E is not a prudent
move. Expensive stocks can become cheap, but cheap stocks become cheaper in a down market. Trying to catch a
stock "on sale" is fraught with risk. In many cases, stocks with low P/E ratios are suffering from weak
fundamentals, where shrinking market share results in lower earnings growth. That's not something you want to
see in a stock. Remember, some of the best merchandise in the stock market often sells at a pricey valuation due
to strong fundamentals and bullish growth prospects.

Stop paying attention

It is easy to lose interest when stocks are selling off, but market downtrends let high-quality names take a breather
and eventually build new bases. During a market pullback, try hard to make a list of stocks that held up the best. A
few will show limited signs of distribution (heavy-volume selling) on the way down and accumulation (high-volume
buying) on the way up. Focus on the most resilient names with the least amount of technical damage. They will
generally be your best prospects.

In conclusion, avoiding these mistakes in a volatile market would give you an edge over other investors and also
help book healthy profits.

Related: 

When to Sell Stocks: Why New Highs on Low Volume Can Halt A Big Run

How to Track Weakness in the Market: Distribution Days

How to Spot Market Bottom & Next Set of Leading Stocks

Read our last week’s article: Share Market Basics: Overhead Supply Can Repulse a Stock’s Climb

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Nifty Breaches 50-DMA; Banking Stocks Fall Sharply

Nifty

Weekly Action

Nifty, +2%; Sensex, +1.9%; Nifty Midcap, +3%; Nifty Smallcap, +3.8%; Model Portfolio, +2.8%.

Market Pulse: Confirmed Uptrend

 

Distribution Day Count: One

 

Weekly Market Review

 

Nifty gapped higher on Monday morning as Banks were in momentum after ICICI Bank released good Q4 FY21 results. On Monday, we shifted the market to a Rally Attempt as the index managed to stay above its recent low (14,151) for three consecutive sessions. On Tuesday, Nifty reclaimed its 21-DMA. On Wednesday, it reclaimed its 50-DMA and staged a follow-through day. So, we upgraded market status to a Confirmed Uptrend. Today, Nifty was under selling pressure and breached its 50-DMA. Also, as the fall was on high volume compared to yesterday’s session, we will consider it a distribution day.

 

On the sectoral front, for this week, Nifty Metal (+9%) was the top gainer, followed by Nifty Bank (+3.3%). Nifty Financial Services, Energy, Media, and Realty closed 2–2.5% higher. Nifty IT closed flat, while FMCG closed 0.3% lower. Today, the advance-decline ratio was in favor of decliners. Of the 2,252 stocks traded, 822 advanced, 1,048 declined, and the rest remained unchanged.

 

Looking ahead, without trying to predict and decode stories, we will take what the market gives and continue to monitor unfolding conditions. Stocks that are breaking out of consolidation have higher relative strength, and superior fundamentals can do well. Continue to trim or avoid ideas lagging and/or breaking down below major moving averages.

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This Agro-Chemical Stock is Actionable: Pi Industries Stock

Pi Industries stock has broken out of a 17-week, 25% deep Consolidation Base 3-weeks ago. However, the stock is still offering investors an opportunity to get on board as the current price is only -3% away from the ideal buy price of INR 2650.

 

The stock has an excellent EPS Rank of 91, which indicates consistency in earnings. The earnings and sales for the stock have grown by 19% and 25%, respectively over the past three years. Its 3-years earnings stability is 7, on a 0 to 99 scale (lower the better). Over the past five years, the earnings and sales for the stock have grown by 9% and 17%, respectively. The 5-years earnings stability is 12. The return on equity for the last reported year is 17%.

 

The key trend lines, 10 and 40-week moving averages are at a comfortable position. The current trends of both the averages are upward and the 10-week moving average is trending above the 40-week moving average. The current price of the stock is trading around 8.3% away from the 10-week moving average.

 

In the last twelve months, Pi Industries has rallied nearly 61.3% as compared to 51.1% for the Nifty500. It has a Relative Strength Rating of 61. We definitely would like to see improvement in the rating. At this point we are taking a step back and focusing on the RS Line.

 

The Relative Strength Line of the stock is offering a lot of encouragement to investors. It has been making good progress in the recent weeks. The overall long term trend of the line is also trending upward. If Pi Industries can maintain this outperformance, it could make sense as a CANSLIM trade.

 

Pi Industries stock has a strong institutional support. The Accumulation/Distribution Rating of ‘A’ represents heavy institutional buying over the past 13 weeks. Although the shares held by institutions dropped in the last quarter, the number of institutions holding the stock increased at the same time. This shows increasing interest among the institutions.

 

The stock belongs to the industry group of Chemicals-Agricultural. You would still want to see some improvement in the industry group rank for the group. The current industry group rank is 81. The current price of Pi Industries is -4% off from its 52-week high price and 80% above its 52-week low price.

 

The stock appears on our idea lists: Trend Template – 5 Months.

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Is Metropolis Healthcare Stock Still Actionable?

Metropolis Healthcare stock has broken out of a 17-week, 22% deep Consolidation Base 4-weeks ago. However, the stock is still offering investors an opportunity to get on board as the current price is only 5% away from the ideal buy price of INR 2323.

The key trend lines, 10 and 40-week moving averages are at a comfortable position. The current trends of both the averages are upward and the 10-week moving average is trending above the 40-week moving average. The current price of the stock is trading around 12.1% away from the 10-week moving average.

In the last twelve months, Metropolis Healthcare has rallied nearly 93.3% as compared to 51.1% for the Nifty500. It has a Relative Strength Rating of 64. We definitely would like to see improvement in the rating. At this point we are taking a step back and focusing on the RS Line.

The Relative Strength Line of the stock is offering making good progress in the recent weeks. If Metropolis Healthcare can maintain a healthy upward move, it could make sense as a CANSLIM trade.

Metropolis Healthcare stock has a strong institutional support. The Accumulation/Distribution Rating of ‘A+’ represents heavy institutional buying over the past 13 weeks. Although the number of institutions holding the stock dropped in the last quarter, the number of shares held by the institutions increased at the same time.

On the earnings front, Metropolis Healthcare has an excellent EPS Rank of 89, which indicates consistency in earnings. The sales for the stock have grown by 13% over the past three years; however the earnings growth remained muted at -7%. Its 3-years earnings stability is 31, on a 0 to 99 scale (lower the better). Over the past five years, the earnings and sales for the stock have grown by 13% and 15%, respectively. The 5-years earnings stability is 31. The return on equity for the last reported year is 24%.

The stock belongs to the industry group of Medical-Services. You would still want to see some improvement in the industry group rank for the group. The current industry group rank is 85. The current price of Metropolis Healthcare is -6% off from its 52-week high price and 107% above its 52-week low price.

The stock appears on our idea lists: Trend Template – 5 Months.

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India Fights Back with a Slew of Measures; Conducts a Large Vaccination Program

To combat the COVID-19 pandemic, India has started one of the world’s largest vaccination programs. The Government of India has ensured a countrywide reach of the vaccination program, setting up a total of 61,347 sites for the purpose. According to government statistics, 12.3 crore Dose 1 vaccinations and 2.5 crore Dose 2 vaccinations have been administered.

 

Currently, registered applicants are given one of two vaccine variants – either Covishield (90.7%) or Covaxin (9.3%). India has been trying to ramp up the pace of vaccinations to shield the nation from the Coronavirus. Without the imposition of lockdowns, it is a near-impossible to stop the spread of the virus. Another way to stop the spread is vaccination.

 

Following are the three major medical factors that help combat the pandemic: one, the Sputnik V vaccine; second, antiviral drug Molnupiravir, and Zydus Cadila’s phase 3 clinical trials of its own developed COVID-19 vaccine.

 

 

Sputnik V – third vaccine to be used in India

 

Dr Reddy’s Laboratories (Dr Reddy’s) is expecting the first lot of Sputnik V stock from the Russian Direct Investment Fund (RDIF) by end of May 2021. In September 2020, Dr Reddy’s and RDIF partnered to conduct clinical trials of Sputnik V and to obtain rights for the former to distribute the first 100M doses, later increased to 125M doses. Sputnik V was developed by the Gamaleya National Research Institute of Epidemiology and Microbiology. It will be the third vaccine used in India against the coronavirus, after Covishield and Covaxin. It gives around 92% protection against COVID-19, per late-stage trial results published in The Lancet.

 

Sputnik V uses a cold-type virus, engineered to be harmless, as a carrier to deliver a small fragment of the coronavirus to the human body. It safely exposes the body to a part of the virus’s genetic code, thus allowing the
body to recognize the threat and learn to fight it off, without risk of falling ill. After being vaccinated, the body produces antibodies especially tailored to fight the coronavirus. The human immune system is thus primed to
fight the coronavirus when it encounters it for real. One of the major advantages of Sputnik V is that it can be stored at 2–8° Celsius, which makes it easy to transport and store.

 

Molnupiravir – drug that helps treat COVID-19 patients

 

Merck & Co., Inc. (Merck) entered into a non-exclusive licensing agreement with Cipla, Dr Reddy’s Laboratories, Emcure Pharmaceuticals, Hetero Labs, and Sun Pharmaceutical Industries to manufacture and distribute the drug Molnupiravir. This is an investigational oral antiviral drug being studied in a phase 3 trial to treat non-hospitalized COVID-19-infected patients. Per the agreement, these companies are permitted to manufacture, market, and distribute the drug in India and also in more than 100 low- and middle-income countries. Molnupiravir is an investigational potent ribonucleotide analog that inhibits the replication of multiple RNA viruses, including SARS-CoV-2, which causes COVID-19. It has been shown to be active in several models of
SARS-CoV-2, including for prophylaxis, treatment and prevention of transmission, as well as SARS-CoV-1, and Middle Eastern Respiratory Syndrome (MERS).

 

Merck will also donate more than $5M worth of oxygen-production equipment, masks, hand–sanitizers, and financial aid to support India in its fight against the pandemic.

 

Zydus Cadila to launch Virafin injection soon; also conducts phase 3 trials of ZyCoV-D

 

Zydus Cadila announced that its drug, Virafin, received restricted, emergency-use approval from the Drug Controller General of India (DCGI) to treat adult COVID-positive patients presenting moderate symptoms. Antiviral
drug Virafin was earlier used to help treat Hepatitis C before it was repurposed for COVID-19. It is administered as an injection. In clinical trials, phase 2 was conducted with 40 patients who presented moderate COVID-19 symptoms; phase 3 was conducted with 250 patients. According Zydus Cadila, 91.15% of the COVID-positive patients in the phase 3 trial recovered in just seven days after receiving the first dose.

 

Zydus Cadila is also conducting phase 3 clinical trials of its DNA-based vaccine candidate, ZyCoV-D. The company has recruited 28,000 people to have a broader perspective, and has recruited people aged 75+ and children of ages 12–18. It is confident about the vaccine’s safety and efficacy. The first two phases have provided good data on safety and strong data on immunogenicity, comparable to most other vaccines being tried currently.