Can these three breakout stocks help you beat the stock market selloff?

Cognitive reframing is a therapeutic technique to change negative or unhelpful thoughts into more constructive or positive ones. It’s the art of seeing things from a different angle, looking for the silver lining, or finding a constructive lesson in adversity. The concept resonated with me, not just in the context of emotions but also in the way I approach stock trading.

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The stock market, much like life, is full of ups and downs. Even during market crashes or selloffs, there are always a few stocks that remain resilient. The concept of reframing my approach clicked that night as I sat down with my laptop to analyse stocks that were holding their ground despite the market downturn. I began to look for stocks that were within 10% of their 52-week highs.

Why 10%? The reasoning is simple. The Nifty50, India’s benchmark index, and the Nifty500, which tracks the broader market, are both down more than 10% from their respective highs. If a stock is still trading within 10% of its 52-week high while the broader market is struggling, it’s outperforming the market.

But is that enough to buy in? Definitely not. That's when I decided to layer in another criterion – volume. High trading volumes confirm that there's significant interest, suggesting that the bullish trend has the backing of real market participants.

Here are three stocks trading within 10% of their 52-week highs and experiencing above-average volumes that may be worth considering if you’re looking for potential outperformers during the downturn.

1. DCM Shriram Ltd

DCM Shriram Ltd, a diversified business group with interests in sectors such as chemicals, agri-inputs and bioseed, has demonstrated remarkable performance even in a volatile market.

DCM Shriram weekly chart

On the weekly chart, DCM Shriram recently broke out of a range it had been in for 161 weeks and is now trading at both a 52-week high and an all-time high. This breakout is significant as it suggests that the stock has cleared substantial resistance and could continue its upward momentum.

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For further context, the price movement aligns with the Fibonacci time zone, specifically the 161-week cycle. Fibonacci time zones are a time-based indicator used by traders to identify where highs and lows may potentially develop in the future. They are based on the idea that time, like price, moves in natural patterns. The 161-week cycle is often seen as a key turning point in long-term trends. In this case, the stock’s breakout coincides with the completion of this cycle, suggesting strong potential for further price appreciation.

Moreover, the breakout was accompanied by rising volumes, a sign that the market is bullish on DCM Shriram’s prospects. This volume surge reinforces the validity of the breakout, indicating that the bulls are in control and the stock could potentially continue to outperform the broader market.

2. Banco Products (India) Ltd

Banco Products (India) Ltd, a leading manufacturer of heat exchangers, radiators and other automotive products, has been quietly outperforming the market, too. The company is well-positioned in the growing auto ancillary sector, which has seen steady demand even in challenging times.

Banco India weekly chart

On the weekly chart, Banco Products closed at an all-time high last week and has continued its upward trajectory this week. This breakout from previous price resistance levels indicates that the bullish trend is not only intact but accelerating. The chart patterns suggest a continuation of the rally, backed by strong buying interest.

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What’s more compelling is the rising volume accompanying the price movement. The increase in volume signifies that the rally is not a fluke but supported by genuine buying interest from institutional and retail investors.

3. The Indian Hotels Company Ltd

The Indian Hotels Company Ltd, part of the Tata Group, is best known for its iconic Taj Hotels. Amid challenges in the hospitality sector it has emerged as a resilient player, demonstrating robust growth since the pandemic.

Indian Hotels Company weekly chart

The stock recently broke out after a long phase of consolidation, signaling a potential resumption of the bullish trend that began earlier in the year.

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Like the other stocks on this list, Indian Hotels has been seeing large volumes over the past few weeks, indicating strong conviction from traders. With the market betting on its growth, this could be another stock that outperforms the broader market in the near term.

Conclusion

Identifying stocks that are trading near their 52-week highs while showing rising volumes can be an effective strategy for finding outperformers during a downturn, and the three stocks above have the potential to continue their outperformance in a tough market.

As I reflect on my solo bike ride and the concept of cognitive reframing, I realise that much like in life, it’s not about avoiding storms but learning to navigate them better.

For more such analysis, read Profit Pulse.

Note: 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 more than 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. He is currently an analyst at Definedge.

Disclosure:The writer and his dependents do not hold the stocks discussed here. However, clients of Definedge may or may not own thesesecurities.