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Wednesday, October 7, 2009

Stock Chart Pattern - State Bank of India (An update)

When I analysed the stock chart pattern of State Bank of India back in Mar '09, it had dropped from its peak of 2396 made on Jan 14 '08 to a low of 894 on Mar 9 '09 - a 63% drop, matching the fall of the Sensex.

It had bounced up to the 1000 level where it had received resistance from the 20 day EMA. All the technical indicators were looking very bearish, and I had expected the up move to get terminated at the 1100 level.

The up move only faced a short-term correction after hitting the 1100 level, before embarking on a strong rally. The pattern mirrored the Sensex, post election results from May 18 '09 onwards.

A look at the 1 year bar chart pattern of State Bank of India will show a prolonged consolidation within a symmetrical triangle followed by an upward break out on decent volumes:-

SBI_Oct709

The State Bank stock made a new high of 2235 on Sep 30 '09 - outperforming the Sensex by rising 150% from its Mar '09 low, and retracing 89% of its bear market fall. But it looks like an intermediate top has been made.

Why? Several reasons. A bearish rounding top formation. Increasing distance between the 50 day and 200 day EMAs. Negative divergences in the RSI, MACD and slow stochastic. All these point to a healthy correction.

Note how the 50 day EMA has provided strong support to the up move from end-Jul '09 onwards. It should provide resistance to the down move. Below that, the 200 day EMA should provide stronger support.

Bottomline? The stock chart pattern of State Bank of India seems to be getting ready for a decent correction. Will the Sensex follow suit? Partial profit booking advised. Remember that this is the top pick among PSU bank stocks. At some point in time, its subsidiaries should get merged with it and create an even bigger entity.

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