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After some selling pressure in the morning trade, the broader markets started witnessing investors' demand from the lower levels and ended the session in the green zone. While the market-wide strength was clearly visible, some overbought stocks couldn’t attract further buying interest and closed in the red.
Here’s a list of two such underperformers, that seem to correct in the near future.
Dixon Technologies (India) Limited
Dixon Technologies (India) Ltd (NS:DIXO) is in the business of selling consumer durables, having a market capitalization of INR 27,726 crores and trades at an expensive triple-digit P/E ratio of 108.52. This is one of the reasons for the bearish view on the stock, which was further strengthened by the formation of a bearish engulfing candlestick pattern on the daily chart.
Image Description: Daily chart of Dixon Technologies (India) with the volume bars at the bottom
Image Source: Investing.com
The stock had rallied ferociously in the recent past, from INR 2,937 in mid-May 2023 to a high of INR 4,730 marked today. That’s a massive gain of 61% in a very short span of time. Now, as the stock seems overbought and has made a bearish engulfing at the very top of the rally, it won’t be surprising if it starts to correct from the CMP of INR 4,538.55 all the way to INR 4,000.
Bajaj Finance Limited
Bajaj Finance Ltd (NS:BJFN) is a well-known consumer finance company with a market capitalization of INR 4,46,798 crores and trades at a P/E ratio of 38.83. Just like Dixon Technologies, Bajaj Finance had also soared sharply in the recent past, from INR 5,600 odd levels in April 2023 to yesterday’s high of INR 7,398.85, a gain of over 30%. But that’s not the lone reason to be bearish on this counter.
Image Description: Daily chart of Bajaj Finance with volume bars at the bottom
Image Source: Investing.com
The stock formed a bearish harami candlestick pattern on the daily chart, at the very top of the rally which is indicating a profit-booking mood of investors. It is a trend reversal pattern and indicates a probable start of a downtrend, especially after it materializes at the top of the rally. Long holders should remain cautious as the stock may sharply correct to INR 6,500, from the CMP of INR 7,248.8.
Note: Both these stocks are in a very strong uptrend, and these reversal patterns are just an early indication of a correction. There is a good chance that these stocks might resume their uptrend, therefore the high of the respective rallies should be a strict stop loss level for short sellers.
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