Which stocks will lead the next bull market? Check technical indicators

New Delhi: Taking Nifty bulls on a roller coaster ride, the stock market which was in a confirmed uptrend a few months back, shifted to an uptrend-under-pressure mode and then shifted to a downtrend mode. After hitting a 52-week low at 15,183 last week, Nifty is now back in a rally-attempt phase as bulls bought the dip as if they are genetically pre-programmed to do so.

Technical indicators are, however, yet to suggest that the Nifty has bottomed out.

“When the market direction changes, it is crucial to keep your watchlist ready and act accordingly. A great way to find worthy watchlist choices is to focus on stocks that hold up well during the correction,” financial services firm William O'Neil India said in a note to investors.

It suggests investors to find stocks with higher Relative Strength Ratings. “You would also want your stocks to hail from leading groups, so insist on a solid Group Rank. Fundamental strength should also play a vital role. Remember, you're looking for the very best the market has to offer. That means finding stocks with good quarterly sales and profit growth. EPS Rank will help you here,” it said.

Their analysis shows that the RS Ratings of leading bank stocks with high weightage in Nifty have improved in the last five weeks, which is a positive indication. The RS Ratings of IT stocks also improved last week.

According to the report, these sectors can be the potential market leaders if Nifty rallies from here.

On the other hand, RS Ratings of metal stocks, which have been under pressure due to falling commodity prices, are very poor and show no signs of improvement.

“RS Ratings of Tata Steel, Hindalco, and JSW Steel dropped to 15–30, indicating that the damage is deep and might need time to repair,” the report said. Similarly, RS Ratings of Realty stocks also deteriorated notably, while that of pharma stocks remained relatively unchanged.

“Without trying to predict and decode stories, we will take what the market gives and continue to monitor the unfolding conditions. Stocks that are breaking out of their bases, with higher relative strength and superior fundamentals, can do well,” William O'Neil India said.

In the last one month period, both Nifty and Nifty IT have fallen by 2.64 per cent while Nifty Bank is down by 1.93 per cent. Metal stocks have been the biggest wealth eroders as the metal index is down 11.27 per cent in a month. The pharma index, on the other hand, has lost 4 per cent of its value.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)