29 Aug 2021 | Trendline Investor | Newsletter 15

Are the markets out of the danger zone?

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

Hello <<First Name>>,

Welcome to the 15th 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 an Inverted Head and Shoulders pattern formation. Hope you enjoy!

A nice recovery across the broader market!

Nifty closed the week at an all-time high!
Also on the hourly charts, Nifty broke out from a 1.5 week cup and handle pattern.
In the below Nifty hourly chart, you can see how after every move there is a short consolidation before the next move up starts.
This is how markets work- it will never move straight up, rather it will always have short term corrections.
These short term corrections are what usually disturb investors and traders in markets.
However, a trend follower would not be really perturbed but would just focus on and follow the major long term trend.

Given the highest weekly close, Nifty might just continue this trend into the next week thus supporting the broader market recovery.
In the below chart of small cap and mid cap, we can clearly see the strong recovery in these indices after 3 weeks of selling.
Looking at these charts and looking at how the indices reversed from the trendline support, I feel a probable bottom is in place for now.

However, don’t forget about the long term resistance I discussed in the small cap index chart in last week’s newsletter.
A break above that long term resistance could bring far more happiness to to retail investors.

Market Breadth:

The market breadth has hit a 7-week low and has been going down week on week.
We might be close to a bottom and the market breadth should start rising in a week or two from now.
However, do note that there are still a good 434 stocks that have strong momentum in the weekly charts and if you focus on these, you can definitely make some good short term money.

I hope you have had a chance to join my daily Youtube live sessions (every Monday to Friday at 11PM IST ) where I review my ‘Trade with Trendline Investor’ portfolio and share the status of the trades that I have taken/ plan to take. I also provide my market outlook for the next day followed by Q&A. In case you’ve missed it or would like to check out previous sessions, you can find it on my Youtube channel.

This portfolio is now up 6% in just 6 weeks, despite the overall market being volatile and multiple stop loss hits. This only re-emphasizes my focus on risk management and sticking to your exit strategy with stop losses in places, no matter what.

Top 4 Stock picks for the week

Stock Performance:

For the 56 stocks recommended in the past editions, the below chart highlights the overall stock performance. A total of 23 trades have been closed.

Best performers 🏆:
- JK Lakshmi Cement is up 46%
- Kitex Garments is up 35%
- Sharda Motors is up 29%
- Jubilant Ingrevia is up 17%
Worst Performer ⚠️:
- Granules is down 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. Fortis Healthcare Ltd 🏥

Fortis is a leading integrated healthcare service provider in India, comprising primarily of hospitals, diagnostics and day care specialty facilities.
The company posted very good quarterly numbers in the Mar’21 and Jun’21 quarters backed by a strong increase in the operating margins. In fact, the last time the company posted such good operating margins was back in 2012. The interest cost also has come down from 337 crs in 2019 to 166 crs in 2021.
Technically the stock has broken out from a 11-year channel backed by strong volumes and is looking good to head higher from here towards 400 levels in the next year or so.

2. Adani Ports & Special Economic Zone Ltd 🚢

The company is in the business of development, operations and maintenance of port infrastructure.
Financially the company has been doing exceedingly well in the last year. It posted an increase of 26% in revenue QoQ in Jun’21. The Sales and profits have been increasing at a CAGR of 12% over the last 5 years and is expected to do well going forward as well.
Technically, the stock broke out from a multi-decade parallel channel in Feb’21 and then the stock fell around 30% from the highs of 900. Since then the stock went sideways, retested the trendline support and reversed this week.
One can buy the stock at current price for targets of 1000 and even higher in the longer run.

3. V-Mart Retail Ltd 👕

Being in the retailing business, Vmart derives around 80% of V-Mart’s revenues from affordable fashion apparel and the balance 20% revenues come from selling general merchandise like footwear and FMCG.
The company was severely affected by the pandemic and its business saw a strong dip in sales in FY’21.
However, given the company's focus in Tier II-IV cities and the past history the company might just do very well once the situation comes back to normal.
Technically, the stock broke out with excellent volumes from a 3-year consolidation in Jul’ 21 and has been consolidating above the breakout zone.
One can buy the stock for targets of 5000 in the next few years.

4. Aarti Surfactants Ltd 🧴

Aarti Surfactants manufactures surfactants and specialty products, serving Home & Personal Care, Industrial Applications, Agro and Oil industries in India and overseas.
The financial metrics of the company look excellent and it grew its Sales by 40% in FY’21 compared to FY’20. The operating profits almost doubled from 24 crs in FY’20 to 46 crs in FY’21.
Technically, the stock has been trending in a strong uptrend and the price is currently taking support around a major support zone.
Looking at the weekly candle for this week, I sense the selling is complete and the stock might head to new all-time highs in the coming months. One can buy the stock at current price for targets of 1900 in the next few months and much higher targets in the coming years.

Trend Following Series- Chart Patterns

In this week’s blogpost, I have written about my favorite chart pattern i.e. the Inverted Head and Shoulders pattern formation and how it can help you in identifying stock reversals or stock bottoms.

I have explained how to identify the left/ right shoulders, head and the neckline. Most importantly, I have explained how you can trade this pattern i.e. what should be your entry point 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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