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Tuesday, June 2, 2009

Stock Chart Pattern - IRB Infrastructure

Before discussing the stock chart pattern of IRB Infrastructure, I have to make a confession. Normally, I would not analyse a stock about which I have no idea whatsoever. More so, because it is in the engineering and construction sector which is notoriously opaque in its accounting practices.

Yesterday, I read this article in the Business Standard about IRB Infrastructure and was intrigued enough to take a peek at the stock chart pattern. What I saw was so fascinating, that I could not pass up the opportunity of sharing it with my readers.

Without further ado, let us take a look at the 1 year bar chart pattern of IRB Infrastructure:-

IRB Infra_Jun0109

What you see above is a classic double-bottom formation. The first bottom was formed at Rs 65 on Dec 2, '08. The second - slightly higher - bottom was formed at Rs 77 on Mar 27, '09. Almost a 4 months gap between the two bottoms. This long gap ensures the solidity of the bottom formation.

In between, the stock price rose all the way to Rs 147 on Dec 30, '08 and then gradually drifted down on low volumes. Note how the volume rose significantly as the stock price moved up from the second bottom - in absolute copybook fashion.

The stock is currently facing resistance near the previous top of Rs 147. A correction down to its 20 day EMA - which has just crept above the 200 day EMA - can be expected before the next rise.

The slow stochastic and RSI are in overbought zones. The MACD is positive but made a lower top. Likewise for the ROC. The technical indicators are also hinting about a correction.

Double-bottoms provide price target indications. The distance from the lower bottom of 65 to the top of 147 gives a Rs 82 difference. The minimum upside can be (147+82=) 229. That would take it close to the high of 222 made on Apr 29, '08 and gives a potential 60% upside from the current market price of Rs 143.

Bottomline? Price target mentioned is based purely on the stock chart pattern of IRB Infrastructure. I haven't checked the fundamentals at all. Any one planning to invest should cross-check the Business Standard article with company annual report and SEBI EDIFAR site for veracity of the figures mentioned.


Kannan said...

Dear Sir,

IRB infra has given me about 75% returns till date. thanks for you analysis of this stock.

I realised the power of technical analysis after reading your article. Could you please suggest me a good book to learn about MACD, RSI, Stochastic, Chart patterns.


Subhankar said...

Appreciate your comments, Kannan.

Some times tech analysis works almost like magic. Some times it fails altogether. It is an art, and not a science - despite the name.

You can read about the RSI and Stochastic oscillator in a couple of blog posts - links are on the right panel under 'Technical Analysis indicators'.

A couple of books on tech analysis are listed in the 'Slideshow' on the right panel of my blog.

The site has a wealth of information on fundamental and tech analysis. Link available on the blog right panel.