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Thursday, July 2, 2009

Stock Chart Pattern - Indraprastha Gas

One look at the stock chart pattern of Indraprastha Gas should convince any one that chasing questionable stocks in search of mythical multi-baggers is a waste of time and money, when strong well-managed company stocks are available at reasonable prices.

PSU (Public Sector Unit) stocks are some thing that I prefer to avoid. The logic being that such companies are usually working under the constraints of frequent meddling by politicians and bureaucrats. But this company is obviously doing things right.

Indraprastha Gas supplies CNG (Compressed Natural Gas) to the transportation sector, PNG (Piped Natural Gas) to the domestic and commercial sectors, and R-LNG (Regassified Liquid Natural Gas) to industrial consumers in the greater Delhi Area, where it has a monopoly.

Steadily increasing earnings, decent profit margins, regular dividend payments, negligible debt, and - most important of all - strong cash flows from operations that covers its capital expenditure and other investing activities. The only apparent flaw is the negative current assets in four of the last five years. A detailed perusal of the Annual Report will be required to figure out the probable cause.

Let us have a look at what the 2 years bar chart pattern of Indraprastha Gas is indicating:-

Indraprastha Gas_Jul0209

The first thing to note is that this stock hasn't displayed as sharp a drop from the Jan '08 bull market top, falling slowly by about 50%. After making a double bottom, it has been on a strong uptrend which is still in tact.

The stock appears to have made a double top at 154. The RSI, MACD and slow stochastic indicators show negative divergences that led to the sharp drop from 154 to 129. But instead of dropping to the 120 level as per the minimum double-top target, it took support at its 50 day EMA as well as the up trend line, and started to move up again.

There are two reasons for the double-top failure. First, the two tops occurred quite close to each other. Second, the volumes and the OBV rose during the double-top formation, instead of decreasing.

The other interesting thing to note is that from July '08, the stock chart pattern of Indraprastha Gas is showing a rounding bottom formation, which gives it a minimum upside target of Rs 180 - a 30% gain from current market price.

Bottomline? Check the annual report for details about the negative current assets, before starting to accumulate slowly. 

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