Wednesday, May 20, 2009

Stock Chart Pattern - Maharashtra Seamless

The stock chart pattern of Maharashtra Seamless will reveal that you can not keep a good stock down for too long. It is a market leader in its niche of seamless pipes used in gas and oil exploration in India and overseas.

With low debt, positive cash flows from operations (except a blip in '06), regular dividend payments and steady growth, Maharashtra Seamless should find a place on the buy list of mid-cap stocks for seasoned investors.

The headwinds of the global slowdown and the lower oil prices have curtailed investments and affected most players in the oil and gas segment. Maharashtra Seamless is no exception.

But its credibility in the export and domestic markets, overseas tie-ups coupled with a decent cash hoard will help it to ride out the downturn better than its competition. A recent repeat order from ONGC worth Rs 750 Crores will surely help its cause.

Enough about fundamentals. Now a look at the technicals:-

Mah Seamless_May2009

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

The stock has broken upwards after making a bullish 'rounding bottom' pattern that indicates gradual accumulation by smart investors.  There are a couple of interesting things to note.

Both the RSI and slow stochastic moved out of their oversold zones and gave 'buy' signals even before the stock price moved above its 20 day EMA. By the time the 20 day EMA crossed above the 50 day EMA, confirming the bullishness, the stock had completed the 'rounding bottom' pattern.

The expected correction followed briefly and formed a 'cup-and-handle' pattern. The correction was well supported by the 20 day EMA as the stock continued to march upwards.

The lower volumes in Mar and Apr '09 were a concern. But the volume has picked up considerably in May '09, supporting the bullish move.

Is it a good time to enter the stock? Yes, if you are an investor with a 3-5 year outlook. If you have a 1-2 year outlook, you may want to wait for the next correction to enter. It is possible that the stock may drop to the 200-220 level to seek support again from its 20 day EMA.

The rise in May '09 has been too steep and the stock looks overbought. Both the RSI and slow stochastic have made lower highs while the stock has moved further up. This is a negative divergence and suggests caution.

Bottomline? If you like mid-caps and are looking for a fundamentally strong, profitable, low debt company with real cash in its books, look no further than the chart pattern of Maharashtra Seamless.

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