These penny stocks are in the overbought zone in the latest bull run

The Indian stock markets began the new year with a bang only to sink a few weeks ago due to concerns of the impact of the war in Europe on fuel prices and other commodities, besides the spectre of rate hikes at home. But the markets are back under the grip of the bulls and benchmark indices are once again trading near their all-time highs.

Investors looking at charts and price and volume patterns have various parameters to decide whether a stock is ripe for the pick or is showing signals of weakness and is best left untouched.

We picked two measures—the Money Flow Index (MFI) and Relative Strength Index (RSI—to check which stocks have entered the overbought zone under both parameters.

The MFI is a technical oscillator that incorporates both share price and 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 and anything above 70 could be used as a measure to pick candidates that could see a slide in price soon. In contrast, the RSI is a conventional technical measure that uses only price.

Many traders play in the penny stocks arena where the volatility is high and liquidity is low. These are risky bets at large, but also offer a ground for making money.

We ran an exercise to see which penny stocks are trading above the 70 mark across both RSI and MFI methodologies. These stocks, in effect, could be in the overbought zone and may see a downtrend.

In particular, we looked at stocks with a market cap of less than Rs 50 crore and spotted around 125 such penny stocks which could be set for a trend reversal.

If we look at the set of firms with a respectable market cap within this set having value between Rs 20-50 crore, we get names like ACI Infocom, Integra Essentia, Dynamic Portfolio, Ashish Polyplast, Mohit Paper Mills, Jaihind Synthetics, Balgopal Commercial, Prism Finance, Zenith Steel Pipes, Ace Integrated, Unique Organics, Sadhna Broadcast, Shanti Overseas, W S Industries, Nintec Systems, Cadsys, Gem Spinners, Modern Steels, Hemang Resources, Goldline, Quadrant Tele and Gilada Finance.

If we go lower down the stack, we have Radaan Mediaworks, Gallops Enterprise, Photon Capital, TRC Financial, Sylph Technologies, Mount Housing, Yuvraaj Hygiene, VKJ Infradevelopers, Seven Hill Industries, Sai Capital, TV Vision, Infronics Systems, Mid India Industries, Tarai Foods, Thakral Services, Mehta Housing Fin, Hemo Organic, Risa International, Ambar Protein, Symbiox Investment, Kome-on Comm, Kkalpana Plastick, Gayatri Tissue and Impex Ferro Tech.