Friday, April 10, 2009

Stock Chart Pattern - Reliance Capital Ltd.

For this week's stock chart pattern discussion, I've chosen Reliance Capital. Readers of this blog may be a bit surprised, since I've been quite outspoken about my abhorrence for the word 'Reliance'.

The reason will become apparent when we take a look at the 6 months bar chart pattern of Reliance Capital:-


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

The stock chart pattern of Reliance Capital seems to be lagging the Sensex chart pattern. It made a 52 week low in Nov '08, which was tested again in Dec '08. A 2 months sideways consolidation followed, after which the stock broke downwards and made a new 52 week low in Mar '09 along with most global markets.

The rally that followed first pierced the 20 day EMA from below; took support on it for a few sessions, then moved sharply up to pierce the 50 day EMA and is now taking support from it. The 50 day EMA has flattened and the 20 day EMA is moving upwards, but is still below the 50 day EMA.

Right through Mar '09 and in Apr '09 volumes have been expanding.  From the recent bottom at 274, the stock has jumped nearly 75% to touch 479.

The ROC and MACD are in the positive zones. The RSI is just below the overbought zone, and hesitating to go further up. The slow stochastics has entered the overbought zone. So, it looks like the  rally may continue for a bit more.

The down sides? The stock is well below the 200 day EMA, which means it is still in a long term bear phase. Though it has gone above the most recent top made in Feb '09, it is still below its Jan '09 high of around 625. Before it can reach there, the stock is likely to face resistance in the 490-500 zone.

Bottomline? Short term investors can enter the stock on the next dip, which can provide profits of about 50% (or 200 points). Why would a long term investor be interested in the Reliance Capital stock chart pattern? The reason is its 'hidden' assets. The mutual funds business alone has assets under management (AUM) of Rs 80,000 Crores - the largest mutual fund business in India. At a conservative valuation of 5-7% of AUM, the mutual funds business alone is worth Rs 5000 Crores. And I've not even talked about its rapidly growing insurance business, plus its stock broking, private equity, consumer finance and distribution of financial products businesses!


Doctor Universe said...

Dear Shubankar

Your writing is really wonderful.. with its detailed analysis. Honestly I hadnt bothered to look at Rel Cap because of the Reliance label..but after reading your post I recalled what aryan (another TA /broker now I think) had mentioned about Rel cap along ago. I think some exposure can be taken at dips. Thanks a lot. keep writing more on the nature of nifty movement atleast once a week.

Subhankar said...

Appreciate your comments, Doc U.

I try to write about one of the Nifty 50 constituents every week. On Saturdays, I write a tech analysis of the Sensex.

For reasons best known to them, the Nifty authorities do not consider gap up or gap down openings in the market. The previous day's closing level is treated as the next day's opening level. So, I don't track the Nifty because gaps on a chart form an important part of tech analysis.