Check out the stocks in overbought and oversold zones by momentum oscillators

The Indian stock market has gyrated to the tune of a faster-than-expected tapering signal from the US Federal Reserve and persisting uncertainty from the impact of the new coronavirus strain Omicron even as bulls have again gripped the reins of the market.

Benchmark indices, which had corrected 10% from the peaks last month, have regained over half of the losses and closed the first trading day of the new year closer to the all-time peak, on Monday. This comes even as analysts expect another round of bearish trajectory is around the corner as the third wave of Covid-19 is now well on its way spreading across the country especially the bigger metropolitan cities.

We sought to identify a few stocks that are showing signs of being in the overbought and oversold zones 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 while the current price is over 20Day SMA.

We get a list of around two dozen companies that fit the bill. While a clutch of these are micro-cap firms, there are also a few larger firms that could be seen in the oversold zone and thus could be picked as potential buy candidates.

These include three names in the large cap space: Kotak Mahindra Bank, Coal India and Cholamandalam Investment Finance Company. While most of the others are small firms, a few others that also form part of the club include HG Infra Engineering, Elecon Engineering, Aurum Proptech and Manaksia Steels.

On the flip side, there are just a handful of stocks that are in the overbought zone. In particular, there are six stocks that meet the criteria and most are micro-cap firms. The only prominent name in this basket is Vaibhav Global.