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13 June 2021 | Trendline Investor | Newsletter 4

Metals back in action after a month!

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

Hello <<First Name>>,

Welcome to the fourth edition of the Weekly Trendline Investor Newsletter. In this edition you will find the Market outlook, Sector to watch out for, Top 4 stock picks and an introduction to understanding Demand and Supply zones with a live example. Hope you enjoy!

Nifty trending in a short term parallel channel:

  • The markets started off the week on a positive note and then corrected on Tuesday & Wednesday thus breaking the short term parallel channel which was discussed in the last newsletter.

  • However, the markets posted a strong recovery to close the week on a positive note.

  • From a technical perspective, Nifty has broken down from the steep parallel channel (angle around 23°) and is now trending in another parallel channel (angle around 8°).

  • This signifies that we might have a much slower move in the coming week compared to the fast rally we had in the last week of May. Any dips towards the lower end of the channel can be bought.

  • However, a breakout from this channel, if any, can lead to another steep rally.

Sector to watch out for:

  • Metals is the sector to watch out for in the coming weeks.

  • The sector has been in a strong uptrend and has also been trending in a parallel channel since months now.

  • All the short term downtrends have been very short-lived and the rally on Friday might take the price to the upper end of the channel again.

  • Continue to hold your stocks in the Metal sector.

Market Breadth:

  • Stocks entering the momentum phase on long term charts have increased for the 7th straight week indicating the kind of rally we are in.

  • As mentioned before, there is no reason to panic if you are holding quality stocks.

  • Ride the trend until it bends - These are best times an investor/trader can have in markets :)

Top 4 Stock picks for the week

Stock performance till now - of the 12 stocks recommended in the past editions, 3 stocks are up 10%+. 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. Jindal Poly Films Ltd.

  • The company produces polyester and biaxially oriented polypropylene films for the packaging industry.

  • The company has been posting excellent numbers in the last one year with a massive increase in the operating margins from 18% in 2020 to 27% in 2021. Profits before tax almost doubled from 527 cr in 2020 to 1040 cr in 2021.

  • Borrowings have also reduced by 50% from 1427 cr to 764 in FY 21. As a result of all this, it posted its highest ever EPS at Rs.180.57.

  • Given all this and the stock trading at a P/E of 4.9, I see the stock getting rerated soon.

  • Technically, the stock has given a 11 year multi-year breakout in Apr'21 and has been consolidating for 2 months.

  • One can buy the stock at the current price for a target of 1200 in the next few months. However, in the next few years, the stock might see levels of 1600+.

2. Indo Count Industries Ltd

  • This textile company is involved in manufacturing bedding, quilts pillows, sleeping bags along with blended cotton.

  • The company reported an increase of 20% in Sales and more than 2x in operating profits in 2021 mainly driven by a significant increase in the operational performance. The operating margins increased significantly from 9% to 16% in 2021.

  • Technically, the stock has come out of a 5.5 year downtrend giving a strong breakout in Oct’20.

  • Since then the stock retraced 38.2% of the entire move up and corrected for 8 months forming a rounding base.

  • This correction has set the tone for another move up towards the previous all time high of 250 in the next few months.

3. Nucleus Software Exports Ltd

  • The company provides lending and transaction banking products to the global financial services industry. Their software powers the operations of more than 200 Financial Institutions in over 50 countries.

  • The company posted a significant increase in operating profits (CAGR of 24%) in the last 3 years with around 130 cr in 2021. The operating margins are also at an all-time high of 25%, which resulted in an increase of 33% in EPS in 2021.

  • The strong improvement in the bottom line after a decade is also reflecting in the stock price.

  • Technically, the Price is breaking out of a 14-year ascending triangle pattern, which signals strong participation and bullishness in this stock.

  • One can buy this stock at current market price for targets of 900 in the next few months.

4. Repco Home Finance Ltd

  • The company is involved in the business of Housing finance and has a niche loan book.

  • Given the low interest rates regime, the company might benefit from the economic recovery and credit demand going forward.

  • Technically, the stock has recovered from a 5-year long downtrend.

  • Given the breakout from an inverted Head and Shoulders pattern, we can safely assume the stock has made a bottom and is setting up well to head upwards from here.

  • One can buy the stock at current market price for targets of 550 in the next year or so.

Trend Following Series- Demand & Supply explained

Last week I wrote about 4 key tools that can help you in your process of scanning, screening, charting and buying stocks.

This week I will be covering the ABCs of Technical Analysis- which is identifying Demand and Supply zones.

The price of every product in this world is driven by demand and supply and depending on which is greater, the price either rises, drops or stagnates. The same is applicable even in stock markets, mutual funds and ETFs.

I have provided a step-by-step explanation on my blog correlating the demand and supply of masks during the Corona crisis. Along with this, I have also taken the below example of the Sugar price chart and explained how sugar prices were influenced by the demand and supply in the market.

While you digest this information, I will be preparing to take you through the basics of identifying a trend next week.

Until then, stay safe and keep learning…

Your Trendline Investor!

If you liked this Newsletter, you can share it with your friends .

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

In case you missed the last editions of the newsletter you can find it here.

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