Markets
Everything is super bullish. Here are five stocks to avoid.
Summary
- While bullish markets often see most stocks rise, not all stocks participate equally in the rally.
MUMBAI : Bull markets often bring a wave of optimism, where most investors focus on finding the next big winners. During these periods, fundamental analysts may not prefer overvalued stocks, but chartists prefer stocks that outperform their peers and benchmark indices. However, even in bullish environments, there are stocks that defy the general trend and show weakness, signalling that they are to be avoided.
One of the most reliable tools for identifying such stocks is the Death Cross, a well-known technical indicator used to spot potential bearish trends.
In this article, we explore the Death Cross theory in detail and provide a technical screen for five stocks that currently exhibit bearish momentum despite the market remaining in a bullish phase.
What is Death Cross?
The Death Cross is a technical analysis pattern that signals a potential shift from a bullish to a bearish trend. It occurs when a stock's short-term moving average (the 50-day exponential moving average, or EMA) crosses below its long-term moving average (the 200-day EMA). This crossover is seen as a significant bearish signal, indicating that momentum is shifting toward the downside.
Why does the Death Cross matter?
While bullish markets often see most stocks rise, not all stocks participate equally in the rally. A Death Cross on a stock's chart is a warning sign for traders and investors that the stock may underperform or even decline in value despite the broader market rallying. This makes it a critical signal for those looking to avoid underperforming or risky assets during periods of market exuberance.
By running a Death Cross scanner on RZone by Definedge, we filtered out 39 stocks from the Nifty 500 constituents as of the market close on 18 September. From them, we have selected five stocks that show a bearish trend, backed by fresh breakdowns in their charts.
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1. Aarti Industries Ltd
Aarti Industries is a major player in the chemical manufacturing industry and is known for its leadership in speciality chemicals and pharmaceuticals. However, despite its fundamental strength, the stock is showing signs of weakness from a technical standpoint.
On the daily chart, the Death Cross occurred as the stock price breached a major support zone, sending the stock into a downward trend.
Before the breakdown, the stock price tested the 200-day EMA, allowing bears to exert control. Since then, Aarti Industries has been in a bearish momentum, making it a stock to potentially avoid in the current bullish market.
2. Union Bank of India
Union Bank, one of India’s leading state-run banks, enjoyed a stellar rally during the bull run of 2022-23, as did many PSU banks. However, long-term underperformance has kept some investors hesitant to participate in the stock.
Union Bank has since lost its bullish momentum, with the price now trading below the Death Cross. The stock has broken down from its key support zone, followed by a retest that allowed bears to take control.
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Additionally, the stock faced strong resistance at the 50-day EMA, reinforcing the bearish outlook. In a bullish market, this is one stock that readers could potentially avoid.
3. Gujarat Ambuja Exports Ltd (GAEL)
GAEL, known for its operations in agro-processing and exports, has been under pressure lately despite broader market gains. Bears are firmly in control of the trend, with the stock displaying a strong bearish divergence between its 50-day EMA and the 200-day EMA, both sloping downward.
The stock has broken below its support zone of ₹150, which the bears retested and promptly rejected. The 200-day EMA acted as a key resistance level during this retest. Until the stock convincingly closes above ₹160, signalling a potential trend reversal, GAEL remains a stock to potentially avoid in this bullish environment.
4. Astral Ltd
Astral, a leader in manufacturing PVC pipes and fittings, has seen a significant technical breakdown. The stock recently experienced a Death Cross on its daily chart, followed by a break below a major multi-month rising trendline, signalling a trend reversal from bullish to bearish.
Astral’s stock price is currently trading within a symmetrical triangle pattern. A bearish breakdown from this pattern would confirm the stock’s transformation into a Bearish Pennant, further signalling that the stock is underperforming. Astral is a stock that readers could potentially avoid in the current market as an underperformer in the mid-cap space.
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5. RBL Bank Ltd
RBL Bank, a private sector banking giant, is another stock exhibiting bearish signals despite broader market strength. The stock broke down from a descending triangle pattern on the daily chart, a bearish formation. The breakdown was supported by a Death Cross, giving the bears control over the trend.
Although the bulls attempted to regain ground by pushing the price back into the triangle, the bears remained patient, awaiting a retest of the moving averages to resume their short positions. As the stock continues to trade below the breakdown levels, RBL Bank is another stock to potentially avoid in the bullish market.
In bullish markets, most investors focus on finding winners. However, it is equally important to identify stocks that are likely to underperform or decline despite market optimism. The Death Cross is a powerful technical indicator that can help identify such stocks, and investors should add this study to their stock filtration process.
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.
As per Sebi guidelines, the writer and his dependents may or may not hold the stocks/commodities/cryptos/any other assets discussed here. However, clients of Definedge may or may not own these securities.
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 here. However, clients of Defineedge may or may not own these securities.
