have been on a roll over the past few sessions, buoyed by the outcome of the US presidential polls and then fuelled by Pfizer's annoucement that its experimental Covid-19 vaccine was more than 90 per cent effective based on initial trial results.
As the Sensex and Nifty scaled record peak levels, a number of stocks have entered an overbought condition as per the Relative Strength Indicator (RSI), which is a good time to book profit and even look at shorting opportunities. However, one needs to clearly understand the price resistance supported with volumes and surviving in an overbought condition.
When a stock experiences resistance on a particular level with volume staying on the higher side and the price position is in the overbought sentiment, market participants typically look for profit-booking opportunities.
What is the RSI indicate?
The Relative Strength Index (RSI) is a technical indicator that identifies overbought and oversold stocks on a scale of 0 to 100. When a stock crosses 70 value, the sentiment is said to have attained an overbought outlook. This suggests profit-booking and shorting opportunities.
Here is the list of stocks in Nifty 500 on overbought condition of RSI
Similarly, when RSI falls below 30 value, the market participants take the opportunity to go long on a stock or accumulate it for a positive outlook ahead. The RSI study helps to differentiate the sentiments on the stock's inherent strength and momentum that alters on an everyday basis.
Given this, around 44 stocks in Nifty 500 index are struggling to move higher as they are in an overbought condition. The price may absorb selling pressure or profit-booking till volume supports a positive close. Nevertheless, one needs to be cautious as the scenario may dent the ovarll profit in one's portfolio. The list includes prominent stocks like Adani Gas
Limited, Dalmia Bharat Limited, United Spirits Limited, PI Industries Limited, Prism Johnson Limited, SRF Limited, Sundram Fasteners Limited, and Ujjivan Financial Services Limited, among others, which can succumb to profit booking at higher levels.
Nifty 500 stocks in overbought condition of RSI (source: www.spidersoftwareindia.com)