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Thursday, July 30, 2009

Stock Chart Pattern - Exide Industries

The stock chart pattern of Exide Industries has an interesting variation of the cup-and-handle formation, which I will discuss a little later.

It is the strong fundamentals that attracted me to the stock. I'm not particularly fond of the auto-ancilliary sector, which is dependent on the cyclical automobile and commercial vehicles sectors.

There are too many players and too little control over fly-by-night outfits producing spurious parts. To compete, better known names can't afford to sell at prices that will generate better margins.

There are a few notable exceptions that command a leadership position in terms of product quality and management strength. Exide is one. Mico Bosch is another.

Over the years, Exide has become the brand of choice for automotive and industrial storage batteries. Increasing sales and margins, strong cash flows from operations, judicious capacity and market expansions - all point to a suitable stock for a long-term portfolio.

Let us take a look at the 2 years bar chart pattern of Exide Industries:-

Exide_July3009 

The pattern in the chart does not have a smooth rounded bottom. Instead it has a double-bottom at 38 in Dec '08 and 35 in Mar '09. Nevertheless, the cup-and-handle pattern is quite apparent.

The more interesting point is that after a brief downward channelled correction that formed the 'handle', the stock not only broke out of the channel on high volume but also managed to move above the 'cup' edge at 80.

The bullish pattern has been completed, and technically the stock should move into a higher orbit. However, there are a few speed-breakers on the way that may slow down the rally.

The RSI and MACD have negative divergences from the stock price. The MFI and slow stochastic haven't shown divergences, but both are in overbought zones.

Then we have to contend with the increasing gaps between the stock price and its 50 day EMA, and between the 50 day and 200 day EMAs. The previous two occasions that this happened - in Jan '08 and Mar '09 - there were trend reversals. I'm not expecting a trend reversal this time, but a deep correction may be in the offing.

Last, but not the least, is the previous high of 90 (for this Re 1 face-value stock), made in Jan '08. Previous highs have a tendency to become resistance levels.

Bottomline? The stock chart pattern of Exide Industries is beginning to look overbought and ripe for a correction. Existing holders can book partial profits. Those wanting to enter may wait to get a better price between 60 and 70.

2 comments:

Titu said...

Hello Sir,

Also exide has investment in ING Vysya Life Insurance Co. (49%)which if insurance bill passed in parliment give a boost to exide ind. growth

sir, can you guide me about how to find target price or support/resistance level and stock analysis of L&T and BHEL

thanking you in advance

Subhankar said...

That's a good point, Titu.

I should have mentioned about the 'hidden asset'. If the insurance companies start going public, Exide will get a better valuation.

May be I'll write a post about L&T this week.