Three buy signals, strong momentum and positive volume balance

Published May 29, 2019

Nifty 50 (NIFTY) moved more or less horizontally on Tuesday and closed at 11928.75 points (+0.03 per cent). Of 1906 listed stocks on NSE, 975 stocks advanced while 824 declined and 107 were unchanged, leaving the advance to decline ratio (AD ratio) biasing slightly towards the bullish side. The AD ratio is a sentiment indicator that broadly suggests if the buyers' sentiment is dominant or the sellers'.

Other indicators are volume indicators and momentum indicators that we usually cover in our analysis. In our article today, our focus is to choose stocks that are favoured by buyers, or to say stocks that are supported by a strong volume based indicator, called volume balance, and the momentum indicator RSI. We will elaborate more on the volume balance indicator in our next article.

How did we select stocks today? We went through our 'stock selection' criteria and set limits. In this case we set momentum value to be above 65, volume balance over 40 and only stocks with turnover of 1000 million rupees or above. We look at three stocks out of 21 for you. You can get your preferred list of all stocks by playing around and trying different permutations and combinations of the selection criteria.

The Federal Bank Limi (FEDERALBNK.NS) Close: 107.55

The Federal Bank Limited is in a rising trend channel both in the medium and long term. This signals increasing optimism among investors. The stock has given a positive signal from an inverse head and shoulders formation by a break up through the resistance at 102 rupees. Further rise to 142 or more is signalled. The stock has support at rupee 97 and 90 rupees.

The volume balance is positive, as indicated by the rising green arrows in the bottom right part of the price chart. The short term momentum of the stock is strongly positive, with RSI above 70. This indicates increasing optimism among investors and further price increase for The Federal Bank Limited.

Recommendation one to six months: Positive

State Bank of India (SBIN.NS) Close: 360.05

Investors have paid higher prices over time to buy State Bank of India and the stock has broken through the ceiling of the rising trend channel in the medium term. Further rise in the stock price is suggested.

The stock touched its all time high last week and closed near that level on Tuesday. Hence the stock is in a new price territory. There is support around 329 rupees.

RSI above 70 shows that the stock has strong positive momentum in the short term, indicating increasing optimism among investors. Positive volume balance strengthens the underlying strength in the stock, as more buyers are now interested in the stock. The stock is overall assessed as technically positive for the medium term.

Recommendation one to six months: Positive

Bharat Electronics Lim (BEL.NS) Close: 112.75

Bharat Electricals Limited has broken above through the ceiling of the falling trend channel both in the medium and long term. In the first place, breakout from a falling trend channel suggests a falling rate of decline in price or development of a sideways trend.

However, in this case the resistance at 100 rupees is broken which is now the support. This is a sign of strength and indicates that buyers are now interested to be invested in the stock. Established higher tops and bottoms may lead to a new rising trend. Next resistance is around 120 rupees. A break above that level may initiate fresh buying in the stock.

Positive volume balance and rising momentum with RSI value above 70 strengthen the stock in the short to medium term. Further rise in stock price is suggested.

Recommendation one to six weeks: Positive

The analyses are based on closing price as per May 28, 2019. Maintaining proper stop loss is always recommended.