Break the Stereotype; Buy High, Sell Higher

“What seems too high in price and risky to the majority usually goes higher, and what seems low and cheap usually goes lower.” – William J. O’Neil

The ‘N’ in the CANSLIM strategy stands for either a ‘New Product,’ ‘New Management,’ ‘New High,’ or any other new factor, which could positively change the operating environment for the stock and ultimately drives its price into newer realms.

Contrary to conventional wisdom, buying low and selling high is not an easy way to make money in the stock market. In fact, it can be quite risky because in many cases, you’re buying damaged goods.

We would like to specially draw your attention to buying into new highs. Buying a stock when it is scaling new highs might seem strange and scary to many investors. About 98% of individual investors would never buy a stock that makes new highs. Buying a quality stock at a new high is buying into the emerging strength with a belief that it could prove to be the beginning of the next big move.

But, don’t buy every stock that makes a new high, make sure that the stock breaks out of a sound base pattern before it sails above the pivot, on a higher than the average volume. In addition, investing when the stock price is way too extended, say 5–7% or higher from its pivot is not ideal.

Traditionally, investors often believe that they are value investing, when they prefer to shop stocks near their 52-week lows. The idea of buying from a discount sale in a supermarket rarely applies while buying stocks. Stocks on the new-high list tend to go higher in price, while those on the new-low list tend to go lower. Good quality products are always expensive, so are the good quality stocks.

Don’t be afraid to buy a stock when it is showing supreme relative strength and sitting near highs. There is no shortage of precedents that show big market winners staging multiple breakouts during multiyear runs. Don’t be quick to say it is too late, especially if a compelling growth story is still intact.

For example, look at the chart of Central Depository Services (India). It advanced 70% in the last three months. Its ideal breakout and buy point was at an all-time high in February, and after breakout, it progressed higher making higher highs. By avoiding growth stock at all-time high with a proper base pattern and strong fundamental and technical profile, you are avoiding a multibagger stock.

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Read our last week’s article :  Why Stocks Form a Base; Five Bullish Traits of a Healthy Base

Nifty’s Winning Streak Continues for Fifth Straight Day; PSU Bank and IT Stocks Outperform

Today’s Action

Nifty, +0.2%; Sensex, +0.2%; Nifty Midcap, +0.5%; Nifty Smallcap, +1%; Model Portfolio, +0.8%

Market Pulse: Confirmed Uptrend

Distribution Day Count: Three

Nifty after a muted opening, gained strength and moved above 15,350. The volatility was high due to monthly F&O expiry. After moving to and fro, Nifty closed 0.2% higher. Volume was comparatively high. Nifty is now less than 100 points below its all-time high. Broader market indices outperformed benchmark indices. Barring Nifty Realty (-1.2%) and Pharma (-0.2%), all other sectoral indices closed in the green. Nifty PSU Bank closed 2.8% higher. Nifty IT (1.2%) continues positive momentum after leading stocks like TCS and Infosys reclaimed its 50-DMA yesterday. The advance-decline ratio was in favor of advancers. Of the 2,259 stocks traded, 1,024 advanced, 893 declined, and the rest remained unchanged. Nifty is trading 3% and 4% above its 21- and 50-DMA, respectively.

Last week, Nifty registered an additional follow-through day and hasn’t added any distribution day after May 11. These are positive signs for a sustainable rally. We would like the index to hold its 50-DMA and trade above that. Without trying to predict and decode stories, we will take what the market gives and continue to monitor unfolding conditions. If the index falls further, adds a distribution day, and breaches its key moving averages, we may change the market status to an Uptend Under Pressure. Focus on quality ideas emerging out of sound bases with RS line at or near new highs while reducing exposure to stocks breaking below key support levels.

Key News

Alkyl Amines Chemicals’s Q4 FY21 revenue grew 62.8% y/y to Rs 382 crore. PAT up 88% y/y to Rs 92.6 crore. Margin expanded 640bps to 34.9%.

Cadila Healthcare announced its Q4 FY21 results. Revenue came in line with estimates, while PAT and margin beat estimates. Revenue grew 2.5% y/y to Rs 3,846 crore. PAT grew 73.6% y/y to Rs 649 crore. Margin expanded 110bps to 22.2%.

Page Industries’s Q4 FY21 revenue grew 63% y/y to Rs 881 crore. PAT came in at Rs 115.6 crore compared with Rs 31 crore in Q4 FY20. Margin expanded 860bps to 19.3%.

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Today’s Action

Nifty, +0.6%; Sensex, +0.8%; Nifty Midcap, +0.1%; Nifty Smallcap, +0.6%; Model Portfolio, -0.3%

Market Pulse: Confirmed Uptrend

Distribution Day Count: Three

Nifty gapped higher this morning but remained volatile in the opening hour. It gradually moved higher as the day progressed and closed above 15,300. Volume was comparatively low. Nifty is now less than 1% below its all-time high. Sensex also crossed the 51,000 mark and closed above that. Broader market indices underperformed benchmark indices. Barring Nifty Metal (-1.8%) and Nifty PSU Bank(-0.3%), all other sectoral indices closed in the green. Nifty Realty closed 2.8% higher. After many days of muted action, Nifty IT (1.8%) led the gains today. Nifty Auto, FMCG, Pharma, and Financial Service closed 0.1–0.5% higher. The advance-decline ratio was in favor of advancers. Of the 2,259 stocks traded, 1,223 advanced, 711 declined, and the rest remained unchanged. Nifty is trading 3% and 3.8% above its 21- and 50-DMA, respectively.

Last week, Nifty registered an additional follow-through day and hasn’t added any distribution day after May 11. These are positive signs for a sustainable rally. We would like the index to hold its 50-DMA and trade above that. Without trying to predict and decode stories, we will take what the market gives and continue to monitor unfolding conditions. If the index falls further, adds a distribution day, and breaches its key moving averages, we may change the market status to an Uptend Under Pressure. Focus on quality ideas emerging out of sound bases with RS line at or near new highs while reducing exposure to stocks breaking below key support levels.

Key News

V-Guard Industries’s Q4 FY21 revenue grew 57.7% y/y to Rs 858 crore. PAT doubled y/y to Rs 67.8 crore. Margin expanded 420bps to 13.2%.

Hindustan Foods announced its Q4 FY21 results. Revenue grew 95% y/y to Rs 482.3 crore. PAT grew 54% y/y to Rs 10.8 crore. Margin contracted 160bps to 18%.

Sharda Cropchem’s Q4 FY21 revenue grew 24% y/y to Rs 1,088 crore. PAT came in at Rs 134 crore, down 5.5% y/y to. Margin expanded 10bps to 18.7%.

L T Foods’s Q4 FY21 revenue declined 5.8% y/y to Rs 1,129 crore. PAT grew 4.4% y/y to Rs 56.3 crore. Margin contracted 30bps to 10.7%.

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Today’s Action

Nifty, +0.07%; Sensex, -0.03%; Nifty Midcap, -0.2%; Nifty Smallcap, -0.1%; Model Portfolio, +0.5%

Market Pulse: Confirmed Uptrend

Distribution Day Count: Three

Nifty gapped higher this morning but gradually moved lower as the day progressed. In the last hour, Nifty recovered from the day’s low and managed to close in the green. Volume was lower compared with the last few sessions. Banking and Financial-related stocks underperformed (Hdfc BankAxis BankIndusind Bank (Nse), and Housing Development Fin. were down 0.5–2.0%). All other sectors closed in positive territory. Nifty Pharma, FMCG, Realty, IT, and Auto closed 0.2–0.7% higher. Nifty Bank and Financial Services closed almost 1% lower. The advance-decline ratio was in favor of advancers. Of the 2,263 stocks traded, 1,040 advanced, 874 declined, and the rest remained unchanged. Nifty is trading 2.5% and 3.0% above its 21- and 50-DMA, respectively.

Last week, Nifty retook its 50-DMA, did not add a distribution day, and registered an additional follow-through day, which are positive signs. We would like the index to hold its 50-DMA and trade above that. Without trying to predict and decode stories, we will take what the market gives and continue to monitor unfolding conditions. If the index falls further, adds a distribution day, and breaches its key moving averages, we may change the market status to an Uptend Under Pressure. Focus on quality ideas emerging out of sound bases with RS line at or near new highs while reducing exposure to stocks breaking below key support levels.

Key News

Emami’s Q4 FY21 revenue grew 37.2% y/y to Rs 730.8 crore. EBITDA grew 65% y/y to Rs 162 crore. Margin expanded 380bps to 22.3%. Domestic volume grew 39% y/y.

Ttk Prestige announced its Q4 FY21 results. Revenue grew 43% y/y to Rs 598 crore. The company reported a profit of Rs 85.4 crore against a profit of Rs 8.6 crore for the corresponding period last year. Margin expanded 930bps to 18%.

Newgen Software Techs’s Q4 FY21 revenue grew 7.8% y/y to Rs 200 crore. PAT grew 48.9% y/y to Rs 52.7 crore. Margin contracted 390bps to 33.2%.

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