Thread: Mean reversal setup

First I would like to credit @kaushikaki Professor for imparting a new perspective to Mean reversal setup (89/200 EMA supports)

I have further fine tuned the setup to include Market breadth, Relative strength and Price performance.
1. Market breadth - This setup is ideal when market breadth (DT% on 0.25) is below 10. Which means out of 50 stocks in Nifty 50 Index only 5 stocks are in double top buy. Indicating a bearish tone.

2. Filter strong fundamental companies - I use @TickertapeIN to identify
Following are the conditions:
a. Market cap above 2500 crores
b. 5Y Historic Cash flow growth above 10%
c. Price above 30

3. On this group identify stocks which are taking support on 89 and 200 EMA channel (H/L) - Manual scan

4. Make a group of these stocks
5. Identify weekly performance of the stock and further filter stocks which gave positive performance.

6. Identify the relative strength across box sizes (I modify the default RS scores)

7. Identify beta of the stocks qualified on RS score (Above 0)
8. I personally prefer stocks with beta more than 1

9. Now study the price action and setup for suitable entry.

10. Exit of these stocks is based on DBS or HP on 0.5% RS chart.

11. Once breadth is above 60, exits are on 0.25% RS charts
This setup is suitable when markets are oversold and strong stocks take supports at important levels (89/200 EMA)

Such market condition (breadth =< 10) gives affordable opportunities to enter strong setups

Traditionally, market gives negative return when breadth is oversold
However if one enter stocks which got weak but took important support and held strong in the last leg of bearish undertone.

Probability of these stocks outperforming the benchmark is high. However stops must be respected at all times.

Complacency is the enemy of Stock market
CFO - Mar 2010 - 710 crores
Mar 2021 - 1887 crores
Cash flow growth of 80%

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