Opportunity in a Bear Market

Published on: November 5, 2024

The worried and concerned D-Street, with the recent decline in the Nifty50, particularly after reaching its peak of 26,277, has raised concerns among retail investors about whether the bullish market trend that began in April 2023 has come to an end. With a 9% pullback from its highs, the street is expecting the stock market crash and there is growing speculation about whether the market will continue to fall or if this is simply a normal retracement—a temporary dip before another rally.

In times of broad market corrections, it’s important to remember that all sectors and stocks don’t necessarily follow the same path. Even in a market-wide sell-off driven by external factors like Foreign Institutional Investors (FIIs) withdrawing funds, certain sectors or individual stocks may continue to defy the trend. This presents an opportunity to identify stocks that are in strong long-term prospects.

How to Find Potentially Bullish Stocks During Market Corrections

To help our readers identify opportunities in this volatile environment, we focus on two key technical indicators:

1. Golden Cross on the Daily Chart

2. Oversold RSI (Relative Strength Index)

Golden Cross – A Bullish Parameter

A Golden Cross is a bullish pattern that occurs when a stock’s short-term moving average – we are considering exponential moving average (50DEMA) crosses above its long-term moving average (200DEMA).

Oversold RSI: Identifying Potential Short-Term Rebound

The Relative Strength Index (RSI) is a momentum oscillator that measures the magnitude of price changes to evaluate whether a stock is overbought or oversold. An RSI value above 70 indicates overbought conditions, while an RSI below 30 signals that the stock is oversold.

When a stock’s RSI falls below 30, it suggests the stock has been sold off too aggressively, possibly due to temporary market sentiment or external factors.

The combination of a Golden Cross and an oversold RSI is a particularly powerful setup. The Golden Cross signals a long-term bullish trend, while the oversold RSI suggests that the stock has already experienced a short-term dip, making it a compelling buying opportunity.

The Chart with Parameters

A Ready Scanner in RZONE

Here is a scanner for traders looking to take advantage of this market correction.

Here is how you can scan this – The Scanner is available in the Pubic Library:

1. Log in to your RZONE account.
2. Select Price Scanner > Candlestick Scanner
3. Under Condition, Select Public > Golden Cross + RSI Oversold

4. Select Group and Timeframe (recommended Daily)

5. Click on Scan and the list of stocks that qualify is here.

Stock List from Nifty500

*Data as of the close of 4^th November 2024

A Tactical Approach

While buying stocks during a bearish phase can be risky, an adage goes, “Risk hai to Ishq hai” (no risk, no reward).

Although the market’s short-term outlook may be negative, stocks with a solid long-term setup may be temporarily undervalued due to broader market sentiment. By focusing on this scanner, readers can take advantage of short-term price corrections and long-term growth potential.