These stocks are under a ‘dark cloud cover’ on the technical charts

The Indian stock market has entered a volatile territory after a sharp slide during the last few trading sessions just weeks after testing a previous peak in January. While bulls have been trying to slowly push back share prices from what they believe was an oversold zone, the possibility of a sharp rise in crude oil price due to the Russia-Ukraine war and its likely impact on the Indian economy continue to be factors to watch out for.

The benchmark indices gained again on Wednesday and while many market pundits are seeing a bottom for the slide in prices, few do consider this as a ‘dead cat bounce’ that may give a false comfort level for investors to pump in cash.

Indeed, the results of the state elections that were declared last week have given some comfort on the hold of the central government. The oil price falling back despite the war in Europe also provides a palliative.

But there are many stocks that are potentially in the overbought zone given their positions on the technical charts.

Investors looking at charts and price and volume patterns have various parameters to decide whether a stock is ripe for the pick or is showing signals of weakness and is best left untouched.

We picked a metric called the ‘dark cloud cover’, which refers to a candlestick pattern that serves as a bear signal. In simple terms, it means that a persisting uptrend may reverse into an upcoming downtrend.

It tracks a two-day bearish reversal pattern where the stock opens the next day at a new high then closes below the midpoint of the body of the first day.

We ran an exercise to see which stocks are under such a dark cloud cover and could in effect see a downtrend.

In total, there are over two dozen companies that fit the bill. Of these, just five are large caps with market valuation over Rs 20,000 crore and the rest are mostly from micro and small-cap space.

The large-cap stocks under the cloud cover are IT majors TCS and Wipro, Axis Bank, mortgage lender HDFC and Indraprastha Gas.

The mid-cap stocks that figure in the list are CDSL and Amber Enterprises.

Most of the other stocks that are overbought are from the small and micro-cap segment. Some of the larger firms within that are Khaitan Electricals, BCL Industries, Oriental Hotels and Ugar Sugar Works.