It’s better not to buy a falling knife!

Yesterday Nifty closed above its key resistance level of 17400. All sectors closed in green. Yet some stocks were beaten down. Tata Elxsi down approximately by 33% from its 52 week high of ₹10760.  Morgan Stanley issued an underweight status on stock with  a target price of ₹5800.  It’s a clear indication that IT stocks are being beaten down sharply. Elsewhere Tesla stock is also beaten down sharply from its 52 week high of $414. It was down by more than 50% from its high. 

 

Is it a good strategy to buy these on dips?

 

It’s better not to buy a falling knife (a term used to denote rapid drop in the price or value of a security) as it could stay at lower levels for more time. Maybe it could break open the current low price and create a new low in the coming days. 

 

Investors should look for confirmation signals for a trend reversal using other technical indicators and chart patterns. Technical indicators like RSI,  moving average price (a 20 DMA or a 50 DMA) or a MACD could effectively confirm the reversal pattern. Both Tesla and Tata Elxsi could take several months for a recovery pattern to be confirmed as fundamentally also they point towards remaining at lower levels owing to poor results.

The result session should test the strength of the stocks in the coming weeks. RPG life had posted good results this week.

 

 Polycab has posted strong results. The company said that the growth in revenue in spite of the high base was due to declining commodity prices on the back of healthy volume growth in Cables and Wires business. The company has  merged Fans vertical with Lights & Luminaries vertical and Retail Wires vertical with Switches & Switchgears vertical to unlock latent value through cross-selling opportunities and operational efficiencies.

 

Banks are expected to post good results and of course the trend reversal in banking stocks happened last quarter itself. We will keep updating you on the results declared.