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Wednesday, March 4, 2009

Stock Chart Pattern - ICI India Ltd

Readers of this blog know that I have been discussing the chart pattern of the Sensex for quite some time. Since last month, Sensex chart pattern discussions have become a regular Saturday feature.

From this month, I plan to discuss the chart patterns of individual stocks on Wednesdays. For the 'inaugural' stock I've chosen ICI India Ltd (of "Dulux" paint brand fame) for a couple of reasons.

It is one of those steady, stalwart stocks - cash rich and with good dividend payments - that has been in my long term portfolio for many years. It has also proved quite resilient during this down turn. Just the kind of unexciting and below-the-FII-radar stock that is great for long term wealth building.

Let us have a look at the 6 months chart pattern of ICI:

ICI_Mar209

(You can right-click on the image above and open it in a new tab or window for a better view.)

After making a 52 week low around 355, the stock has been steadily moving up, as is evident from the higher tops and higher bottoms. In Feb '09, it decisively moved above the medium term 50 day EMA from below and briefly penetrated the long term 200 day EMA as well, with a close above it on Feb 16.

Thereafter, it fell back below the 200 day EMA and has been trading between the 50 and 200 day EMAs. Both the moving averages have flattened out and the 50 day EMA is showing signs of moving up. (To learn more about EMAs, please read the post "Why you need to follow the latest trends to become a better investor".)

Of the other indicators, the ROC and RSI are just above the '0' and '50' lines, therefore mildly positive. The slow stochastics has fallen below the '50' line, but showing signs of moving up - slightly negative. The MACD is well above the '0' line - which is a positive.

Since the 52 week low, ICI has moved up by more than 17% and is currently consolidating around 416 level. The notable thing is that during the past three days of Sensex fall, it has held rock steady at this level.

The only major negative for the stock is the extremely thin volumes of trade. Lack of volumes make it difficult to move in and out of a stock, and a short spurt in volume can quickly swing the stock up or down by a comparatively large amount.

Bottomline? Not a great stock for traders or adrenaline junkies. Good stock to accumulate in small quantities for conservative, long term investors.

4 comments:

ssharma said...

thank you subhankarji for a very well researched stock suggestion.However the dividend yield of stock is only 2% at current prices.Dont you think that RALLIS INDIA with a div yield of 4.6% will be better.Low trading volume is the reason why FIIs are not very much interested and have spared this stock for long term small investors.

Subhankar said...

Thanks Sujoy.

I don't own or follow Rallis and it could be a better stock to own than ICI. GNFC is fundamentally strong and has a higher dividend yield of 7.9%.

What I really like about ICI is its cash hoard. A buy back at a much higher ceiling price is ongoing. I won't be surprised if they maintain or even increase dividends this year.

Rishi said...

Subhankarji,
A dividend of 160% is recommended for this year. ICI is again a company with -ve net current asset. Its a zero debt company too. Could you please suggest a range to look in for entry into the stock?
Thanks
Rishi

Subhankar said...

Difficult to say, Rishi.

ICI has been in a one-way gradual up move that has taken it from 350 to 550. Since Jan '09, it hasn't fallen below its 20 day EMA (which is now above 500).

Keep tracking it and be patient. May be you can get in at Rs 450 level on a reaction.