M&M Finance, Blue Star: Trading strategies for 5 highly overbought stocks

Mahindra & Mahindra Financial Services, Sonata Software Limited, and Blue Star may rise up to 10 per cent in the overbought territory of RSI.

Relative Strength Index (RSI) assists in ascertaining the strength of indices and stocks, by identifying overbought and oversold territories. It is a technical oscillator that reads underlying momentum on the scale of 0-100. Herein, an instrument trading over 70 is read as overbought, while one trading below 30 as oversold. 

As per the technical indictor, stocks trading in the overbought category are viewed as highly overpriced, with prices expected to correct. Similarly, an oversold condition suggests stocks are significantly under-price.

Currently, five major stocks in Nifty500 index are defying this theory, as they continue to hit higher levels into the overbought category, with robust positive bias. On Friday, shares of Mahindra & Mahindra Financial Services hit new all-time high, while Sonata Software registered fresh new 52-week peak.

Similarly, Blue Star shares are hovering near its historic peak, wheras Firstsource Solutions and Cera Sanitaryware are decisively trading near their monthly highs. 

Here are the trading strategies for these overbought stocks:-

Mahindra & Mahindra Financial Services Ltd (M&MFIN)

Likely target: Rs 300

Upside potential: 10%
 

The resilient breakout has led shares of Mahindra & Mahindra Financial Services to scale higher levels, despite overall market witnessing high volatility. The range of Rs 450 to Rs 445 has been the neckline of “Ascending Triangle”, which the stock surpassed with aggressive volumes. The positive bias is signalling a rally towards Rs 300 levels. The immediate support for the stock comes to Rs 260, which must be considered on the closing basis.  CLICK HERE FOR THE CHART

Sonata Software Limited (SONATSOFTW)

Likely target: Rs 700 to Rs 720

Upside potential: 10%

Shares of Sonata Software are strongly rising, as the “Golden Cross” breakout continue to bolster the lower support, as per the daily chart. Every decline in the recent past has met with an accumulative stance, boosting stock on the bullish rally. From a medium-term perspective, a support of Rs 600 needs to be observed. Only a critical breach of this mark would let bears to seize control. Short-term support exists at Rs 640 levels and the trend is headed to Rs 700 to Rs 720 range. CLICK HERE FOR THE CHART

Blue Star Ltd (BLUESTARCO) 

Likely target: Rs 1,500

Upside potential: 9%

Blue Star shares have conquered the barrier of Rs 1,300 on a conclusive note. The volume surge on the breakout confirms an upward bias on a short-to-medium term outlook. Thus, as long as the stock protects Rs 1,300-mark, the positive bias is expected to rally in the direction of Rs 1,500. The weekly chart reflects accumulation to occur, if the stock corrects to the support of Rs 1,300. CLICK HERE FOR THE CHART

Cera Sanitaryware Ltd (CERA)

Likely target: Rs 1,500 (once Rs 6,000 is taken out)

Upside potential: 9%

To breakout on the upside, shares of Cera Sanitaryware require to close over Rs 6,000 levels, which it has been attempting since September last year. A resolute move over Rs 6,000 may open the doors for Rs 6,500, as it would be a breakout on sideways trend. Thus far, the support for the stock exists at Rs 5,800 and Rs 5,600 levels. CLICK HERE FOR THE CHART

Firstsource Solutions Ltd (FSL)

Likely target: Rs 140 (once sell-off gets absorbed)

Upside potential: 14%

Shares of Firstsource Solutions are currently making efforts to absorb all the selling pressure emerging in the range of Rs 122 to Rs 120, which was the breakdown range in May last year. If the stock manages to overcome this sell-off, the positive bias shall trigger a rally towards Rs 140. Immediate supports for the stock are positioned at Rs 115 and Rs 110 levels. CLICK HERE FOR THE CHART