Amazon deals

Friday, November 17, 2017

Technical updates – Gayatri Projects and IRB Infrastructure

With the economy showing signs of settling down after absorbing the double-whammy of demonetisation and GST implementation, focus of investors and analysts is shifting towards the neglected infrastructure sector once again.

Fortunes of shareholders of two companies from the construction sector - Gayatri Projects and IRB Infrastructure - have taken divergent paths. The stock of Gayatri Projects has gained 47% in the past two years, while the stock of IRB Infra has lost 7%.

On the financial front, Gayatri Projects has a debt/equity ratio of 2.22 and its financial expenses are 200% higher than its net profit. IRB Infra has a lower debt/equity ratio of 1.23 and its financial expenses are 50% higher than its net profit.

Gayatri Projects is trading at a P/E of 9.2. IRB Infra is trading at a four times higher P/E of 39.9. 

Gayatri Projects

The closing stock price of Gayatri Projects formed a 'triple bottom' reversal pattern below its three EMAs during Feb '16 and May '16. That triggered a price recovery that faced strong resistance from its Nov '15 top of 151.50.

A breakout with good volume support above 151.50 on Apr 17 '17 failed to sustain above the resistance level. Another breakout on Jun 5 '17 managed to keep the stock price above the resistance level, which was subsequently tested on Jul 5 '17 and Aug 10 '17 and turned into a support level.

The stock rose to touch a new high of 201.75 on Nov 16 '17 (note that the stock's face value was split from Rs 10 to Rs 2 in Feb '17). Daily technical indicators are looking bullish but showing negative divergences by failing to touch new highs with the stock's price.

Some correction or consolidation may occur. For the past two months, bulls are buying every dip, so corrections have been shallow.

IRB Infrastructure

The closing stock price chart of IRB Infrastructure has frustrated long-term investors but given plenty of opportunities to short-term traders. The chart shows three bearish phases and three bullish phases during the past two years.

Light blue ovals have marked every crossing of the 50 day EMA below (death cross) or above (golden cross) the 200 day EMA. The 200 day EMA itself has meandered sideways for the past two years - giving no advantage to bulls or bears.

Daily technical indicators are looking bearish after correcting overbought conditions. The stock price touched a higher bottom of 200.60 on Aug 10 '17, and may attempt to rise past its May 2 '17 top of 266.80.

(If you wish to enter either of these stocks, or any other stocks from the construction sector, you are on your own. The sector typically has high debt and uneven cash flows and profits.)

Wednesday, November 15, 2017

Nifty chart: a midweek technical update (Nov 15 ‘17)

FIIs and DIIs were both net buyers of equity during the first three days of trading this week - worth Rs 19.6 Billion and Rs 6 Billion respectively as per provisional figures. Still Nifty lost 204 points (almost 2%).

Interestingly, FIIs were net sellers on Mon. (Nov 13) & Wed. (Nov 15), while DIIs were net sellers on Mon. & Tue. (Nov 14).

Inflation is inching up again because of higher food and fuel prices. CPI rose to 3.58% - a 7 months high - in Oct '17 against 3.28% in Sep '17. WPI rose to 3.59% - a 6 months high - in Oct '17 against 2.6% in Sep '17. RBI is likely to maintain status quo on interest rates.

Exports declined 1.12% to US $23 Billion while imports grew 7.6% to US $37.1 Billion in Oct '17. The trade deficit widened to $14.1 Billion from $11.1 Billion in Oct '16.

The daily bar chart pattern of Nifty continued its correction from the Nov 6 top of 10490. The index has fallen below its 20 day and 50 day EMAs and is near the lower edge of the 'support/resistance zone' between 10100 & 10200.

Bullish hopes of an intermediate bottom formation have been raised because the index touched an intra-day low of 10094 today - retracing almost 50% of its entire 802 points rally from the Sep 28 low of 9688. (The 50% Fibonacci retracement level is treated by many technical traders as a trend deciding level.)

The facts that two small upward 'gaps' formed on Oct 13 & 25 have been filled and the 10100 level wasn't breached on a closing basis have improved the chances of a recovery by the index.

Daily technical indicators are looking bearish and showing strong downward momentum. MACD is falling below its signal line in bullish zone. RSI is falling below its 50% level. Slow stochastic is well inside its oversold zone, and may trigger a pullback.

Nifty's TTM P/E has moved down to 25.72 - still much higher than its long-term average. The breadth indicator NSE TRIN (not shown) has risen sharply in its neutral zone and looks ready to enter its oversold zone. That may limit index downside.

The index is trading well above its rising 200 day EMA in a bull market, and has corrected less than 4% from its Nov 6 top. Many fundamentally sound stocks have corrected much more because their Q2 (Sep '17) results disappointed the market. Those are the ones to put on a 'buy list'.

Investors would do well to remain circumspect. If the 10100 level gets breached - and the possibility can't be ruled out entirely - the index can fall another 100 points, where support from the 61.8% Fibonacci retracement level may kick in. A fall below 10000 can drop the index to 9700 (its previous support level in Aug '17 & Sep '17).

Tuesday, November 14, 2017

Gold and Silver charts: battle between bulls and bears reach a stalemate

Gold chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of Gold: "Another test of support from the 200 day EMA seems on the cards. A possible breach of the 200 day EMA can drop gold's price to the zone between 1240 & 1250."

There were several tests of support, and even a few intra-day breaches of the 200 day EMA between Oct 26 and Nov 6. However, bulls put up a good fight as gold's price failed to close below the 200 day EMA even for a single day.

Technically, the 200 day EMA did not get breached, giving bulls the upper hand. On Nov 9, gold's price rose above its 20 day and 50 day EMAs to touch a lower top of 1289.50. Bears used the 'sell on rise' strategy, and are not showing any signs of giving up. 

Daily technical indicators are sending mixed signals - which is often the case during periods of consolidation. MACD is above its signal line - moving sideways in bearish zone. RSI is also in bearish zone - just below its 50% level. Slow stochastic is in bullish zone, but showing downward momentum.

On longer term weekly chart (not shown), gold’s price closed below its 20 week EMA but above its 50 week and 200 week EMAs in long-term bull territory.  Weekly MACD and Slow stochastic are looking bearish and showing downward momentum. RSI is in neutral zone.

Silver chart pattern

The following comments appeared in the previous post on the daily bar chart pattern of Silver: "It (silver's price) has been oscillating about its three EMAs, which have converged together. A sharp move is likely to follow. Odds are better for a downward move."

On Oct 27, the expected downward move touched a higher intra-day low of 16.62 and bounced up above its three EMAs. Bears used the 'sell on rise' strategy, pushing down silver's price below its 200 day EMA and gaining a slight advantage.

For the past 5 weeks, silver's price has been consolidating sideways within a 'symmetrical triangle' pattern, from which a breakout can occur upwards or downwards.

Since silver's price entered the 'triangle' after a corrective move, the likelihood of a downward breakout is greater. However, it may be prudent to wait for the breakout before deciding to buy or sell.

Daily technical indicators are giving conflicting signals. MACD has merged with its signal line and is moving sideways in bearish zone. RSI is at its neutral zone. Slow stochastic is falling towards its 50% level.

On longer term weekly chart (not shown), silver’s price closed between its 20 week and 50 week EMAs, and below its sliding 200 week EMA in a long-term bear marketWeekly MACD and RSI are in neutral zones. Slow stochastic is in bearish zone.