Over 90 stocks hit record highs on BSE. Should one stay invested in momentum stocks?

While the benchmark indices hit a fresh record high on June 15, more than 500 BSE stocks hit a fresh 52-week high and as many as 91 stocks hit a fresh record high on the same day.

Given the participation by many stocks, the rally seems broad-based but investors should stay cautiously optimistic due to divergence in a key technical indicator, experts said.

52-week high is the highest price at which the underlying stock/index has traded in 1 year. When a stock hits fresh 52-week high consistently with along with high volumes, it is considered to be a bullish sign.

Meanwhile, record high is the highest historical level attained by a stock/index. For example, Nifty50 hit a record high of 15,901 on June 15 which is the highest level Nifty has touched since its formation.

Usually, traders use these levels as a reference point to make an entry or book profits.

Out of the 91 stocks that hit record high, 17 are from the Group ‘A’ segment of the BSE. These include SRF, D-Mart, ICICI Prudential, Power Grid, KEI, GSPL and JSW Energy.

The companies in group ‘A’ represent those companies and businesses that are most popular and are actively traded on the exchange. They are the most liquid companies that are listed on the exchange at present.

“When markets are on a roll and hit fresh 52-week high coupled with a large number of stocks also participating in the rally, it’s a sign of strength,” Aditya Agarwala, Senior Technical Analyst, YES SECURITIES said.

“Momentum is usually strong in these stocks and market participants should use momentum as a key tool to pick up stocks which can outperform the benchmark indices in a short span of time helping them to generate an Alpha over the benchmark Indices returns,” he said.

It’s a classic case of any bull run and a healthy sign of a broad-based rally. But, investors should watch out for divergences as well. Also, if stocks hitting a 52-week highs start to fall it could be considered as the first sign of an upcoming dip.

“As we can see the rally has been broad-based as % no. of stocks close to their life highs has been significant. But, on the other hand, we have an ongoing diverging trend when we look at some of the trend strength indicators, especially on the Nifty 200 where despite an up move their relative strength (RSI) value has been lower than its Jan 2021 reading,” Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities said.

“The same is the case with Nifty 50 where its weekly RSI is about to hit the overbought zone. We remain cautious when it comes to high beta midcap names where traders can remain active,” he added.

Uttekar expects an immediate up move above 15,600 towards 16,040 to be challenging. Hence, the view remains cautiously optimistic where leverage on either side should also be avoided.