Wednesday, May 27, 2009

Stock Chart Pattern - IFCI Ltd

The stock chart pattern of IFCI Ltd provides clear evidence of the popularity of this stock with traders. Right through the bear market, it has provided ample opportunities for making trading profits.

Since I have professed my bias towards investing, and not trading, why am I discussing a stock that makes investors shy away but traders rub their hands in glee? It has got something to do with the concept of a 'mad money' portfolio.

90% of my 'core' portfolio is 'boring' - held in 'safe' large-cap defensive stocks and cyclicals which pay regular dividends. The holding cost of this core portfolio is near zero because of partial profit bookings, bonus issues and rights issues.

But even a gray-haired geriatric needs an occasional feeling of excitement. There are better places - like the race course and card tables - for adrenalin junkies. However, the odds in such places favour the house.

So 10% of my portfolio - my 'mad money' portfolio - comprises fundamentally questionable, 'what-if' and junk stocks. Should all the stocks in this portfolio go down the tube, that is a risk that has been built into my return equation.  But even if a single stock hits it big, the returns will recoup all the losses made by the rest of the stocks.

IFCI belongs to this 'mad money' category. Investors who like to take on more risk may increase the percentage of the 'mad money' portfolio suitably - but it should not exceed 25-30%.

Enough digression about investment philosophy. Let us have a look at the one year bar chart pattern of IFCI Ltd:-


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

After making a bottom at Rs 15 in early Dec '08, the IFCI stock rose to 26 in early Jan '09. Doesn't sound like much, does it? But that is a 73% rise in a month's time! The stock drifted down to touch Rs 16 in Mar '09. This bullish 'double bottom' pattern has been marked on the chart above.

The chart pattern shows a slower rise for the rest of Mar '09, but volumes picked up in Apr '09 and IFCI moved up to Rs 29 in early May '09. A brief consolidation was followed by a huge jump in price and volume.

This time the stock hit Rs 50 - rising more than 200% in 6 weeks! Now you know why it is a trader's delight. There are some headwinds - the zone between 50-52 may provide good resistance.

The technical indicators are indicating caution. The stock has moved sharply above its 20 day EMA, which in turn, has moved sharply away from the 50 day EMA. The divergence between the MACD and its signal line is also increasing.

Both the RSI and slow stochastic are in overbought zones. The ROC, which has been oscillating around the zero line for the past few months, has also rapidly moved up to the 100 mark.

A correction seems to be around the corner. It will give the stock time to catch its breath before conquering the resistance at the 50-52 zone and move up towards the next resistance zone between 65-72.

Bottomline? The stock chart pattern of IFCI Ltd shows a possible drop to the support of the 20 day EMA between 35-40. That dip can be used to re-enter the stock. Caveat: this is strictly for those with a trading bent. The fundamentals of the company do not justify a long term investment.


Unknown said...

IFCI has performed well.
Can you provide your views on JINDAL PHOTO with 1 to 3 years investment outlook.

Subhankar said...

Hi Dalpat

Since your query is not specific to the post, I would prefer to reply to you directly. Please send an email to me with three fundamental reasons why you like the Jindal Photo stock. (I try to avoid giving opinions about stocks I don't track.)