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Wednesday, October 14, 2009

Stock Chart Pattern - SpiceJet

Before starting the technical analysis of the stock chart pattern of SpiceJet (a reincarnation of ModiLuft), I need to clarify why I'm writing about a stock from the airline sector that is in perennial doldrums worldwide.

The airline industry in India has been a tale of missed opportunities, poor service, government intervention, over-estimation of passenger traffic, hubris of owners with little or no experience in the travel industry and mounting losses.

What attracted me to the SpiceJet stock? Firstly, it is a low-cost airline. In the USA - the 'mecca' of air travel - only low-cost airlines like JetBlue and SouthWest make any money.

Secondly, its Jun '09 (Q1) results. 21% growth in passengers, that led to a 15% growth in revenues and a Rs 26 Crore net profit, compared with a Rs 129 Crore loss in Q1 '08. (Jet Airways posted a loss of Rs 225 Crore in Q1 '09 against a profit of Rs 143 Crore in Q1 '08.)

Most importantly, the company has got financial backing from billionaire Wilbur Ross, who has invested about Rs 350 Crores that has given the company financial stability and provided relief from cash flow problems.

Needless to say, the stock price has reacted very favourably, as the 2 years bar chart pattern of SpiceJet will show:-


After making a high of Rs 100 in Jan '08, the stock dropped more than 90% during the bear market. A sideways consolidation, followed by a bull rally, took the stock to the Rs 28 level in early Jun '09, above the 200 day EMA.

A strong correction quickly brought the stock below both the 50 day and 200 day EMA, to the Rs 17 mark, when the news of the positive Q1 '09 results were declared.

A sharp rally on good volumes followed, as the stock entered a bull market, moving above the medium term and long term averages to Rs 43. It is facing some resistance at the 38.2% Fibonacci retracement level of the entire bear market fall.

Notice the bullish saucer pattern that the stock has formed. That means it can reach its previous high in the medium term, giving it a 100% upside target. Provided that the Q2 '09 results are not too disappointing. The monsoon months are not the best period for air travel.

The RSI has slipped below the overbought zone. So has the slow stochastic. The MACD is mildly positive and just above the signal line. The clincher is the OBV. After steady accumulation by smart investors, volumes have perked up strongly for the past month.

Bottomline? The stock chart pattern of SpiceJet indicates that there is plenty of upside left. But the fundamentals have a long way to improve to reach investment-worthy levels. This one is for investors with large risk appetites. Can be bought on dips with strict stop-loss.

1 comment:

Subhankar said...

Sanjay Aggarwal, SpiceJet's CEO has quit - shortly after Wilbur Ross divested his stake to the Marans.

He was instrumental in turning the loss-making airline company into profit. His absence may not be good for the airline.

Investors can book profits.