Here’s what technical charts tell us about stocks in the overbought zone

The Indian stock market has gyrated to the tune of a faster-than-expected tapering signal from the US Federal Reserve and uncertainty from the impact of the new coronavirus strain Omicron.

Benchmark indices have corrected 10% from the peaks in October, and analysts expect another round of bearish trajectory is around the corner, even though the market has seen a marginal uptick after the big slide last week.

We sought to identify a few stocks that could sink further given their positions on the technical charts.

In particular, we considered the Money Flow Index (MFI), which is a technical oscillator that incorporates both the share price and the traded volume data for placing companies in the overbought or oversold baskets.

The index can also potentially help an investor to identify divergences that could be hinting at a change of trend in price. The index figures vary between 0 and 100. Anything above 80 could be used as a measure to pick candidates that could see a slide in price soon.

Since the MFI uses both the share price and traded volume data, it is also called the volume-weighted Relative Strength Index (RSI) as against the conventional technical measure that uses only price.

If we juxtapose this set with those that figure among potential bounce-back basket, one clear difference is that only small-cap stocks seem to be in the overbought zone.

Looking at stocks with a market value of more than Rs 500 crore we get names like Raghuvir Synthetics, Media Matrix World, MosChip Technologies, Polo Queen Industrials, Automotive Stampings, Ritesh Properties and ASM Technologies.

Lower down the order in the list of firms with market cap between Rs 100-500 crore, we have names like Surat Textile Mills, AXISCADES Technologies, Birla Precision Tech, Nakoda Group, LGB Forge and Cressanda Solutions.

Other companies in this list are Indo Thai Securities, Aarnav Fashions, Indosolar, Garnet International, Vegetable Products, National General Industries, Shreeji Translogistics, Ankit Metal & Power, Calcom Vision, Kapston Facilities, Suraj Industries, Pan India Corporation, Servotech Power, Unison Metals, Ruttonsha International and Decipher Labs.