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Wednesday, June 24, 2009

Stock Chart Pattern - Indian Hotels

The stock chart pattern of Indian Hotels Co Ltd is unlikely to get investors all excited about jumping in. The stock made a low in Mar '09 and participated in the subsequent rally but failed to beat even its Sept '08 high.

The stock corrected about 50% of its recent rise, down to its 50 day EMA, and started to consolidate sideways. Indian Hotels, from the house of Tatas, is supposed to be the best hotel company in India. Any one who has spent even one night at any of the Taj Group of hotels will surely agree. So what gives?

The global economic slowdown is the main reason for the poor performance of all hotel stocks. Indian Hotels has been no exception. Their overseas properties have done pretty badly. The luxury end of the hotel business - which is the forte of the Taj Group - has borne the brunt of the downturn. It is unlikely that the situation will improve any time soon.

Some times, stalwart companies suffer because of a temporary blip in their environment. The Indian Hotels stock got hammered due to the erosion in their bottom line. Is it the end of the road for them? Hardly. Will they regain their glory? Surely - but not immediately. It may take two or three more quarters.

Smart investors probably know that, and if you look at the 1 year bar chart pattern of Indian Hotels below, you will notice that during the recent consolidation after the correction, the OBV is gradually moving up. That is a sign of accumulation.

Indian Hotels_Jun2409

After a continuous slide, the stock made a low in early Dec '08. A brief recovery was followed by another drop to the Rs 35 level in Mar '09. The rounding bottom formation in Mar '09 has been marked. Notice that the bottom formation period was less than 3 months - so the subsequent rise was less.

Volumes didn't pick up appreciably till late in May '09. All through the rally, while the stock was making higher tops, the RSI was making lower tops. This negative divergence cut the rally short before it could break convincingly above the Rs 80 level.

The OBV was negative till the end of May '09, and only moved up into positive territory in Jun '09. The MACD is just about in the positive zone but way below its signal line.

The RSI has just reversed off the 30% line. The slow stochastic had a positive crossover, i.e. the %K line moved above the %D line, though both are in the oversold region. These two indicators, along with the rising OBV is signalling that smart money has started to re-enter the stock.

Bottomline? The chart pattern of Indian Hotels Co Ltd is indicating that this may be a good time to enter for patient investors. The benefits may take a while to come your way - but it will come.


Anonymous said...

Subhankarji thanks for the article.I am waitinf for correction to enter IHOTELS as it has risen more than 100% from its feb2009 low.Tourist arrivals are down and this will have an impact on the bottomline of IH.For long term ther is no worry.What should be the right price to enter this stock

Subhankar said...

Appreciate your comment, Sujoy.

The Indian Hotels stock had a decent correction already and is moving sideways.

You can pick up a small quantity now and add more on dips. Remember that it is a Re 1 face value stock.