These small-cap stocks are in the oversold region by momentum oscillators

small-cap stocks

Indian Market
by 5paisa Research Team Last Updated: 2023-01-11T10:37:52+05:30

The Indian benchmark stock market indices have corrected 5% from the peak last month and have failed to build the momentum to test the high level in the new year.

We sought to identify a few stocks that are showing signs of being in the oversold zone given the momentum oscillators on the technical charts.

In particular, we considered the concept of Rate of Change (ROC). The ROC is a momentum-based technical indicator that captures the percentage change between the current price and the price during a certain period in the past. 

When imposed on a chart, it moves into a positive quadrant if price changes are to the upside, and conversely swings into the negative zone if price changes are in the downward direction.

It can be used to pick divergences, overbought and oversold positions as also centreline crossovers.

We ran the exercise on stocks across capitalisation levels and picked companies where ROC125 is in the positive zone and ROC21 is below (-) 8 and at the same time previous day close price is less than 20Day SMA, or simple moving average, while the current price is over 20Day SMA.

We get a list of around a dozen companies that fit the bill. All of these are micro-cap firms and could be seen as potential buy candidates.

These include eleven names in particular: Aarvi Encon, Duroply Industries, Captain Technocast, D & H India, Indus Finance, Sovereign Diamonds, Shine Fashions, Peeti Securities, Shantai Industries, Archana Software and T. Spiritual World.

These stocks have risen at a median rate of around 9% over the last one week, with several of them rising around 10-12%. But they are still in the oversold zone in the technical charts.

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