03 Oct 2021 | Trendline Investor | Newsletter 18

Is Nifty taking a pause?

Disclaimer: I am not a SEBI registered advisor and this newsletter is for educational purposes only

Hello <<First Name>>,

Welcome back to the 18th edition of the Weekly Trendline Investor Newsletter. In this edition you will find the Market outlook, Top 4 stock picks and a short write up on how to identify and trade a Descending Triangle pattern formation. Hope you enjoy!

Nifty forms a strong red candle for the first time in 3 months!

  • Nifty has been trending strongly for the last two months forming higher highs (HH) and higher lows (HL) on the charts indicating a very strong uptrend.

  • However, this uptrend is very likely to be over, at least for the short term, since the HH-HL structure is broken.

  • Also, the parallel channel, which acted as a strong support, has been broken indicating a pause in the uptrend.

  • So what’s next? I presume Nifty might now enter into a consolidation or correction mode. This does not mean the broader market will not outperform. There are still many stocks that are strong and they might continue to do well.

  • Two sectors that I’d be watching closely in the coming days are metals and sugar. I believe we are almost done with the correction/consolidation and stocks from these two sectors will do well in the coming weeks/months.

Market Breadth:

  • In the 17th weekly newsletter, I mentioned that the market breadth might not be as strong as it was in the second half of 2021 and that is what the markets are exhibiting.

  • The number of stocks with strong momentum on the weekly charts has been almost the same since the last 6 weeks and I don’t see this number improving drastically from here.

  • So, focus on these stocks that have strength and you might continue to get that extra return.

You can find all the daily YouTube live sessions (every Monday to Friday at 11PM IST) along with the review of my Trade with Trendline Investor’ portfolio (which is up 18% in just over 2.5 months), on my YouTube channel. Do check it out.

Top 4 Stock picks for the week

Stock Performance:

For the 68 stocks recommended in the past editions, the below chart highlights the overall stock performance. A total of 24 trades have been closed.

  • Best performers 🏆:

    • Kitex Garments is up 46%

    • Stovekraft is up 33%

    • JK Lakshmi Cement is up 28%

    • Ease My Trip is up 27%

    • Apcotexind is up 26%

    Worst Performer ⚠️:

    • Redington is down 16%

For past recommendations, stock performance and trailing stop loss updates, please refer to this sheet. You will also find some interesting FAQs that will guide you how to allocate your money to the stocks recommended.

1. Shree Digvijay Cement Co. Ltd 🏗️

  • The company has been operating since 1944 and manufactures and sells cement. It has one of the best ROCE in the cement space.

  • It has posted one of its best operating margins at 21%. This is a massive improvement when compared to the 3% operating margins in 2017. This also means the operating profits were massive at 106 crs.

  • Technically, the stock broke out in May’20 from a 14 year symmetrical triangle pattern and has been trending up in a parallel channel ever since.

  • The stock is currently trading at the lower end of the parallel channel and might be ready to reverse and head higher again towards targets of 110 in the coming months and even higher in the years to come.

2. PTC India Ltd

  • PTC India is in the power trading business and is a Government of India initiated Public-private partnership.

  • The company has increased its Sales from 7706 crs in 2010 to 18,346 crs in 2021. The operating margin has also increased from 1% to 10% in the same period. This increase also meant the company improved its net profits by 4x.

  • Technically, the stock has not given returns to its investors in the last 10 years and is now breaking out of a 14-year descending triangle pattern.

  • One can buy the stock at current price for targets of 150 and higher in the next few years.

3. Dhampur Sugar Mills Ltd 🎋

  • The company is a leading integrated sugarcane processing companies in India.

  • The increase in the sugar prices internationally is helping the sugar sector and I see this price increase to continue in the coming years.

  • The last few quarters have been excellent for the company and it increased its Sales from 3484 crs in 2020 to 4157 crs in 2021. The operating profits also increased by 30% in the same period.

  • Technically the stock went into a strong consolidation for the last 4 years after the breakout from a 9 year symmetrical triangle back in Oct’15. The stock has again given a breakout in Apr’21 and rallied quickly before it started correcting.

  • I see this correction as a short term correction before it resumes its upward journey again.

  • One can buy the stock at current price for targets of 450 in the next year and even higher in the coming years.

4. Petronet LNG Ltd 🛢️

  • Petronet LNG Ltd was formed to develop, design, construct, own and operate Liquefied Natural Gas (LNG) Import and regasification terminals in India and is a Joint Venture between GAIL, Indian Oil, Bharat Petroleum & ONGC, each holding 12.5%.

  • The company has excellent operating numbers and increased its operating profits by 3x since 2015 while the revenues have not grown much.

  • Technically the stock has not done much in the last 4 years after a steep rise in share price.

  • The stock might be in the last stages of this time correction and could be prepping to head higher towards levels of 300 and higher in the coming years.

Trend Following Series- Chart Patterns

In this week’s blogpost, I have written about the Descending Triangle pattern formation.

I have explained how you can identify this pattern formation and more importantly, how you can trade this pattern i.e. conditions required to confirm the pattern formation and how to identify the entry price and stop loss. I have also taken some examples to showcase the same.

I hope you enjoy reading it!

Until next week..

Your Trendline Investor!

For any queries, please contact me on twitter @dmdsplyinvestor using #Asktrendlineinvestor.

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