Fear and greed have a much bigger effect on prices than logic. Hence the saying, “Bottoms are made on bad news, and tops are made on good news.”
When things look good and hopeful, markets are usually close to their peak.
And when the news is full of fear and doubt, the markets quietly start to build their base for the next rally. This is where we are at present.
For the first time since 2014, tensions in the Gulf region have caused crude oil prices to go above $115 per barrel. Investors are worried when crude prices go up because it causes inflation and puts pressure on economies around the world. On cue, global stock markets reacted quickly.
Traders on Dalal Street also felt the tremors. The Nifty50 opened with a sharp drop of more than 700 points on Monday, which shows that traders in the market were scared.
When markets are under pressure, history shows that some of the best opportunities come up. But buying things at random during a crash can be dangerous. Picking stocks without a clear plan is like throwing darts and hoping one of them hits the bullseye.
Instead, investors can find good opportunities even in volatile markets if they use a disciplined and systematic approach. We created a strategy called “BOLD BULLS Stocks” to achieve this goal.
Instead of trying to guess where the market will bottom out, the goal is to find stocks that are already moving up quickly over a number of time frames.
It’s interesting to note that this behaviour is often more obvious in small-cap stocks, which tend to move faster during both corrections and recoveries.
The Next Rally Could Be Led by Small Caps
The Nifty Smallcap / Nifty50 ratio chart allows you to see how strong small-cap stocks are compared to each other.
Nifty SMLCAP250 / Nifty50 Ratio Weekly Chart
The Nifty SMLCAP250 / Nifty50 ratio chart on the weekly timeframe is showing an interesting setup. The ratio line is finding support near the 200-Exponential Moving Average (200EMA), which has been an important support level in the past.
More importantly, the ratio line is starting to show signs of moving up.
If the ratio line is going up, it means that small-cap stocks in the Nifty50 are outperforming large-cap stocks.
The BOLD BULLS strategy: How to identify quality in a crash
We used our BOLD BULLS framework to look at the Nifty Smallcap 250 universe with this idea in mind.
Let’s go over the strategy rules before we talk about the stocks that made the cut.
Rule for Entry
The plan is to find stocks that are moving up quickly over a range of time frames.
The Relative Strength Index (RSI) must be above 60 on the Monthly, Weekly, and Daily charts means the buyers are interested in long-term, medium-term, and short-term trends.
Stocks that meet this condition often show that institutions are buying them and that there is a lot of demand.
The Risk
Discipline is needed for even the best plans. To lower risk, the strategy says to set a stop-loss at 15% below the price you bought it at.
The Exit
The BOLD BULLS also uses a structured way to book profits. Instead of selling all of their shares when the stock goes up, investors can ride the trend and lock in their profits over time.
This is how the method works:
• When the stock price goes up 35% from the entry price, take 50% of the profit.
• When the stock goes up by 50%, sell the last 50%.
This method keeps investors in strong trends while also protecting their profits.
Now, let’s discuss the stocks…
5 small-cap stocks that are doing well during the market crash
According to the BOLD BULLS strategy scan, these five small-cap stocks are currently gaining ground on multiple timeframes.
Even though the market has been unstable lately, these stocks have stayed strong.
1. Anand Rathi Wealth (ANANDRATHI)
The wealth management company has been steadily raising its prices thanks to strong business growth and more investors getting involved.
2. Data Patterns (DATAPATTNS)
The stock of the defence electronics company is doing well technically, and India’s focus on making its own defence products is still helping the company.
3. J.B. Chemicals & Pharmaceuticals (JBCHEPHARM)
During times of uncertainty, pharmaceutical stocks often stay stable, and J.B. Chemicals’ prices are still healthy.
4. Kirloskar Oil Engines (KIRLOSENG)
Kirloskar Oil Engines has been showing steady trend strength on the charts because of demand from the industrial and infrastructure sectors.
5. Sai Life Sciences (SAILIFE)
Investors have been paying more attention to Sai Life Sciences in the pharmaceutical research space, and the company currently meets the strategy’s multi-timeframe momentum criteria.
Fear & uncertainty for Investors
It’s not fun when the market crashes. They make traders scared and uncertain. But the best chances often come up when the news is at its worst.
Geopolitical tensions and rising crude prices have shaken global markets for a short time, but disciplined investors often move from panic to process.
When the market goes down, don’t let your emotions get the better of you. Instead, use a structured strategy like BOLD BULLS to find strong stocks that could lead the next phase of the market rally.
Markets can drop suddenly, but strong stocks usually don’t stay down for long.
Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia is an Independent Research Analyst and is engaged in offering research and recommendation services with SEBI RA Number – INH000022075. He has two decades of experience in India’s financial markets as a trader and technical analyst.
Disclosure: The writer and his dependents do not hold the stocks discussed here. The website managers, its employee(s), and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives and resources, and only after consulting such independent advisors if necessary.
