Divi’s Labs, Affle, Aarti Drugs among stocks showing bearish signs with a ‘bald head’

The Indian stock market indices hit a new peak last month and have since then seen some profit booking. The indices are now slowly trying to claw back even as investors wait to gauge the last quarter's results that would start rolling from the coming week. They would also have an eye on the Union Budget that would be announced a few weeks down the line.

In a bull market, it’s easy to be swayed by a herd mentality to look for growth stocks. But as concerns of valuations in the market grow, investors start looking at alternative investment themes such as value investing.

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.

One such parameter is ‘black marubozu’, which means black bald head in Japanese. This is a one-day bearish pattern with a long black with little to no shadows. The pattern shows that sellers controlled the trading day from open to close. It signals a bearish pattern overall.

If we use this parameter and pick stocks from Nifty 500, we get just five stocks, a sharp decline from September when this number was as high as 27 stocks. Moreover, this is equally split between large and mid-caps, with just one small cap in the basket.

In the large cap space, there are two names: Divi’s Laboratories and Honeywell Automation. If we compare this to the picture four months back, firms like TCS, Bajaj Finserv, Nestle India, HDFC Life Insurance, Hindalco Industries, GAIL (India), Tata Elxsi, YES Bank, Gland Pharma and Fine Organic have escaped the pack. Honeywell Automation has stayed out while Divi’s joined the danger zone.

At the same time two other stocks are from the mid-cap space with a valuation in the Rs 5,000-20,000 crore bracket. These include BASF and Affle.

The sole small cap stock in the list is Aarti Drugs.