Repco Home, VST Industries, ISGEC among ‘morning stars’ that may move up

The Indian stock market has been trying to form a new bottom at about 15% below the peak level attained a few times over the last twelve months. Bearish sentiments globally have meant the bulls are not able to get a handle on the direction of the market despite the stocks coming into a fair value zone.

Investors who bank on technical analysis or patterns in the price and volume movements of a stock(s) typically use candlestick charts or use it along with other parameters to predict price movements of stocks in the future.

One such parameter is ‘morning star’, a visual pattern consisting of three candlesticks that are seen as a signal for a potential upside. The pattern forms after a downward trend and gives an indication of the beginning of an upward climb.

In effect, it signals a reversal of the previous price trend. If one is a trader, one may twine the formation of a morning star with other supporting indicators to take a call on buying a stock or a set of stocks.

The pattern itself comprises a tall black candlestick, a smaller black or white candlestick with a short body and long wicks. These two are followed by a third tall white candlestick.

While the candle in the middle represents market indecision where the bears are losing control to the bulls, the third candle is considered a confirmation of the reversal that can lead to a north-bound move.

This is the opposite of an evening star, which represents a potential trend reversal for the stock to go down.

If this parameter is used, we get a set of nearly half a dozen companies all in the small-micro cap pack with a few penny stocks as well. Not a single Nifty 500 stock can be seen with this pattern.

At the top of the heap are VST Industries and ISGEC Heavy Engineering, with market values of over $500 million.

Repco Home Finance and Monarch Networth are two other stocks with a market valuation of more than $100 million (about Rs 780 crore).

In the Rs 100-crore plus market cap group there are names like Binny, JITF Infralogistics, SORIL Infra Resources, Eco Recycling and Nile.

Lower down the order in the sub Rs-50 crore level, there are two stocks: Roni Households and Link Pharma Chem.