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Fallingknife

Falling Knife stocks-How to identify them?I have discussed in previous post about what exactly falling knife stock is with a case study. The next question would be how would an investor know that stock is a part of falling knife category? To identify such stocks, I feel you should know about 2 concepts/indicators which are Moving averages and Fibonacci retracement. I will try to make you understand these concepts and also the levels where averaging/investing can be started. 1. Fibonacci(Fib) is a mathematical concept which governs the entire universe, even our stock markets. I can't explain the entire scientific concept here so just sticking to stock market. Fib retracements help investors identify support and resistance for stock. There are 2 golden ratios which every investor must know, 38.2%(0.382) and 61.8%(0.618). When a stock is in uptrend, 38.2% is the level where most stocks retrace upto. 61.8% is considered as last ray of hope for bounce in retracement. Any stock which has fallen below 61.8% is considered weak. 2. Moving averages(MA) are indicators which are continuously changing with moving stock market. These are an average of prices over a time period, hence Time frame is important. There are many types of moving average, we use mostly simple and exponential. When I say 20 Day EMA, it is Exponential average of 20 days of closing price of stock or when I say 200 week SMA, it is simple average of 200 weeks closing price. Exponential is more used than Simple moving average which has scientific reason behind it so if you are curious, you can search for it. 200 Week moving average is considered as last ray of hope for investment. A fall below 200 Week moving average or 50 Month EMA indicates strong bearishness. 3. I have seen stocks reach from top to bottom and top again. Tata motors, HDFCAMC being few famous examples. Even, Most of real estate, PSU banks stocks are reversing. So, equity is beautiful, wild and highly unpredictable. However, A stuck investor should wait for monthly closing above 61.8% to start averaging in such stocks. Also, a closing above 200 Week EMA will slightly indicate return of bullishness and that's where reversal traders should think of investing I feel this much knowledge is enough for now. If you have got some enlightenment from above information, lets apply this knowledge on one stock where I know many many investors are stuck, Rajesh Exports. How do I know? I saw the shareholding pattern and that's where I was shocked to see the number of shareholders increase from 45000 odd to over 2 lakhs in the past 9 months! Starting with fundamentals, Rajesh Exports Ltd is 4 decade old manufacturer of Gold and Gold Products available at a PE of around 9 and sales growth of 20% in last 3 years. All the ratios feel nice to me except the operating margin which is below 2% consistently which has led to drop in EPS which is major concern in the stock. Technically, stock had a 52 week high of 1030 in Feb 2023 and it is now available at 360 odd which is more than 60% wealth destroyed. And as I said, the number of shareholders have grown 5x in the same time. (Note that FII, DII holding has reduced in same period). If i see now from a non-investors perspective(psychology explains that investor can never see the bearishness), the stock has formed a beautiful double top and broken its neckline which was 61.8% of fib retracement all ready for a further fall and I see no support till 270-300 zone(sorry investors). It is also below 200 week moving average-red wavy line(if you check monthly chart, it is below 200 month moving average as well). A perfect example of Falling knife. What next? If I were an investor, My last SL would have been 525 which is 50% retracement. Since, the stock is below 61.8% retracement , there is no chance of averaging at this moment. Hence, I feel investors should wait & watch until stock moves above 440 before averaging/entering. Don't jump in it. Wait for a big bullish monthly candle before averaging. Also.... As promised,, I am sharing you names of stock which i have identified to be part of this unloved category. As an homework, do check fundamentals and reversal levels based on what we have discussed above. The stocks are GRINFRA, TCNSClothing, Metropolis, Luxindustries, Polyplex, HLEGlasscoat, Deltacorp, Barbequenation. If you are a curious investor, even you can find such stocks and do let me know in the comments below. I would like to discuss any doubts regarding the concepts, idea or anything related to stock market so feel free to comment. Keep investing, keep minting. India has a very big future ahead so these are the best few years to invest in India.Be a smart investor because it is important that you choose the right stock to meet your financial goals.
NSE:RAJESHEXPOEducation
by chartistamey
10
Falling Knife Stock-A case study approach!Introduction:- We have seen an amazing bull run in global markets including our Indian markets in the past 3 years. Many investors have been able to gain multibagger returns from this bull run. However, we all must understand that like every coin has 2 sides, every bull run has few stocks which are either under performing(like our beloved HDFC Bank) or are part of falling knife category. A falling knife is a term used when a security, such as a stock, quickly drops in price. During such instances, investors are recommended to wait for the security to reach its lowest point before buying back in. (Source: CFI) The reason for falling knife could be change of fundamentals, weak results, future degrowth prediction or anything beyond our understanding. And it is important to identify such stocks . Investors try to enter such stocks thinking they have caught the bottom just to keep funds locked in the stock for longer times. Hence,it is beneficial to stay away from them until a reversal pattern is seen with good volumes in weekly time frame. Case study:- Let's discuss one such stock from the footwear category, Campus Activewear. Company is one of India’s largest sports and athleisure footwear brands in terms of value and volume. Good return ratios(ROE,ROCE) above 20%, high sales growth of 32% in last 3 years,slightly expensive valuation but hardly anything so wrong in fundamentals from my understanding. Being a techno fundamental investor, I look at lot of things from fundamental as well as technical perspective before entering. So, from a technical view, just have a look at stock's chart. In late 2022, stock was around 620 levels and now stock is trading near 270 levels which is more than 50% of wealth destroyed. A proper example of Falling Knife whose bottom is still not made. There must be some unlucky investor who is holding the stock from the tops expecting a reversal but what he has missed is the amazing bull run of Nifty from 18800 to 22000 in this last 10 months. And that is a huge miss. Learnings:- #1:-If you are an investor with have limited capital, it is better to have a Stoploss even for your investment stocks in a bull run. Remember, Even Warren Buffet owned Berkshire Hathway booked loss in Paytm #2:-If you are an investor with good amount of free capital, just forget! Don't have FOMO. Cash equity securities are beautiful and unpredictable. We might see this stock above 1000rs levels or below 100rs in the next 5 years. Remember, even The best of best investors owned few stocks which failed miserably. #3:- For an investor trying now to hunt a bottoming/reversal opportunity,do wait for stock to sustain a weekly closing above 320 which is a strong resistance. Remember, not even promoters can catch exact tops and bottoms, so you also should not try to! Conclusion: I would say that if you trust your analysis and company's fundamentals, you should not listen to outside crowd. However, A falling knife can act as a dagger in your portfolio . A smart investor is one understands what company's business is as well as what the stock's chart is trying to say.
NSE:CAMPUS
by chartistamey
19