Stock Chart Pattern - Unitech Ltd.

This is the fourth in the series of stock chart pattern discussions on Wednesdays. Why did I choose an over-hyped but down-in-the-dumps real estate stock like Unitech? The answer will be apparent when we take a look at the interesting 6 months chart pattern below:-

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

After falling off a cliff in Oct '08, Unitech rose sharply to above 50 on good volumes before falling rapidly again to make a new low in end Nov '08. Nothing remarkable so far - many other stocks behaved similarly in the Oct-Nov '08 period.

What happened next is the interesting part. The stock entered a sideways consolidation pattern - much like the Nifty, of which it is a part. But take a look at the volumes (overlaid on the price chart).

Significant increase in volumes without a corresponding rise in price level usually indicates 'accumulation'. The 50 day EMA is far below the 200 day EMA and the gap is increasing. That means, sooner or later the stock is likely to break up wards.

Who is doing the buying? Good question. A lot of retail investors stuck at higher prices may be buying at current low levels to average down - which is a risky policy. But that alone wouldn't have created the high volumes. My guess is that insider buying is happening as well.

Why? Because Telenor of Norway is interested in Unitech's nascent telecom business. Recently they made a substantial lump sum payment to Unitech. That will ease some of the liquidity problems in the real estate business.

The ROC is neutral. RSI is in the negative zone. MACD is also marginally negative. But the slow stochastics has moved up strongly from the oversold zone.

The stock has been facing resistance at the 20 day EMA since going above it briefly in Dec '08 and Jan '09. It has again penetrated the 20 day EMA from below. Penetration from below of the 50 day EMA and a couple of closes above it will indicate that the buying momentum is gaining control.

Bottomline? Unless the strong resistance between 50-60 levels is overcome, there is no point in entering Unitech. In the longer term charts, the stock has made a 'mountain' like pattern. That indicates that it will stay in the dumps for a long time and may never regain the previous highs. If I were you, I would stay far away from such speculative stocks.