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Thursday, April 2, 2009

Stock Chart Pattern - Hero Honda Ltd

While discussing the chart pattern of ICI India Ltd on Mar 4, '09, I had mentioned how the stock was proving resilient after hitting a low in Oct '08 by slowly making higher tops and bottoms. But it still remained in a bear phase - below the 200 day EMA.

If you look at the 1 year closing chart pattern of Hero Honda Ltd, it will warm the cockles of your heart:-

HeroHonda_Mar3109

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

After going below the still-rising 200 day EMA in June '08, Hero Honda made a 52 week low at around 630 in July '08. The Sensex and almost all the known stocks were in a steep fall at this stage and most made their 52 week lows around Oct 27, '08.

But Hero Honda entered a new bull phase! After sharply moving above the 20 day EMA, the 50 day EMA and the 200 day EMA, it fell back below the 200 day EMA in late Oct '08 - along with the rest of the market. But it made a higher low on the stock chart.

It stayed in a sideways consolidation pattern for most of Nov '08 before embarking on an unbridled bull run, which is getting stronger as time passes. There were two short corrective phases in between. One in Jan '09 was supported by the 200 day EMA. The one in Mar '09 was supported by the shorter term 20 day EMA.

From the Jan '09 corrective phase onwards, Hero Honda has remained above all the three EMAs - the 20 day, 50 day and 200 day - with the shorter term averages above the longer term ones. This is the clearest sign of a bull phase.

The only note of caution is that the Mar '09 rally in the rest of the stock market has propelled Hero Honda far above the 200 day EMA and all three EMAs are pointing sharply upwards. This is usually the sign of an imminent correction.

The slow stochastics, and ROC are trying to move down from over bought regions. The MACD is still going strong. But have a look at the RSI. It has made a lower top while the stock is making higher ones. This is a 'divergence' in technical terms and indicates the possibility of a correction soon.

In Hero Honda's case, the technicals seem to reflect the fundamentals. Two-wheeler sales are strong and growing, in spite of the fact that the parent Honda Motors of Japan is becoming an active competitor.

Bottomline? Hero Honda is one of the few index stocks that is in a bull phase. New investors may buy on dips. Existing investors should hang on tight and enjoy the ride.

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