Penny stocks and others under ‘dark cloud cover’ on technical charts

The Indian stock market has been consolidating after a sharp uptick over the recent weeks that catapulted the benchmark indices to their all-time high.

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 picking or is showing signals of weakness and is best left untouched.

We picked a metric called ‘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 24 companies that fit the bill. Of these, half are penny stocks with a market cap under Rs 50 crore and the share price less that Rs 50.

Penny stocks

The penny stock group has names like National Plastic, Concord Drugs, Swarna Securities, Rishi Laser, Sheshadri Industries, Advance Metering, RM Drip and Sprinkle, Palm Jewels, Encode Packaging, Rich Universe, Supremex Shine Steel and Vision Cinemas.

Other companies

The rest of the pack is largely dominated by larger small caps, even though there are three large caps or companies with market cap of more than Rs 20,000 crore in the list: Deepak Nitrite, IndusInd Bank and Federal Bank.

The other smaller companies in the overbought zone include Tata Metaliks, Yuken India, BCL Industries, Fluidomat, Titagarh Wagons, Kapston Services, Umang Dairies, The Byke Hospitality and PTC India Financial.