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Friday, July 10, 2009

Stock Chart Pattern - Dhanalakshmi Bank

There is a very good reason why I chose to write about the stock chart pattern of Dhanalakshmi Bank. It is not because of any of the following reasons:-

1. It is a small but 80 years old private bank based in Kerala
2. Slow and steady growth with a regional bias has been its motto
3. Reasonable profits and dividends - with occasional blips
4. The major shareholder was forced to divest a part of his stake to adhere to RBI strictures
5. Recent induction of a professional management team, headed by a former executive from the Anil Ambani group
6. A change of strategy and direction - by going pan-India with new branches and new business activities.

All of the above reasons, taken together, makes it a potential high-growth prospect. Smart investors have already taken positions and pulled the stock price up from a low of Rs 37 in Mar '09 to Rs 119 in Jun '09 - a gain of more than 200% in 3 months!

But that is not what really intrigued me. Many other companies with much poorer credentials performed even better during the recent market rally. It was something I spotted in the 6 months closing chart pattern of Dhanalakshmi Bank (in blue) when compared with the chart pattern of the BSE Sensex index (in red).

During the rally in Mar '09, the stock tracked the index right up to the budget in the middle of May '09. Post-budget it pulled sharply upwards, and has been consolidating sideways - much like the Sensex.

Now look at the interesting positive divergence in Jul '09. The Sensex has started to correct as the FIIs are pulling out, but the Dhanalakshmi Bank stock is proving quite resilient. During today's (Fri. Jul 10, '09) sharp fall in the Sensex, the stock took support from its 20 day EMA, and actually went up by a Rupee on a volume of more than 100,000 shares. Smart investors are not selling. In fact, they are buying more!

The RSI and MFI are around the 50% levels, indicating indecision. The MACD is still in positive zone, though it has been sliding and remains below the signal line. But the slow stochastic has bounced up from near the oversold zone and has moved up above the 50% level. This is definitely supporting the bullish undertone.

One of the interesting exercises one can perform during bear phases - and we seem to be in one right now - is to look for stocks that are not falling as much as the Sensex. The usual suspects are the stocks in the pharmaceuticals and FMCG sectors. Are there others?

Make a list of a few of these resilient stocks. Do a quick fundamental check about their cash flows, debts, dividend payments. Track the short listed stocks as the Sensex heads down. One or two that fall the least are likely candidates for investment.

Bottomline? The stock chart pattern of Dhanalakshmi Bank makes it a suitable candidate for the short list of resilient stocks. But it isn't the only one. Look for other, may be better, candidates.

2 comments:

Abhijit said...

Excellent Analysis as usual. As per your guidance I was trying to locate undervalued companies. I got one Great Eastern Shipping. Would you please look at it Subhnkarda?

Subhankar said...

Thanks, Abhijit.

Will try and write a technical analysis of GE Shipping.