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Wednesday, October 21, 2009

Stock Chart Pattern - Unitech Ltd (An update)

The stock chart pattern of Unitech Ltd was almost down for the count in end Mar '09, groggily raising its head above the 20 day EMA - after making a bottom at 22 in Nov '08 from a high of 547 in Jan '08. A whopping fall of 96%, from which most stocks are unlikely to ever recover.

The high trading volumes and a sharp rise in the slow stochastics indicated accumulation that could lead to an upward breakout. But I had cautioned investors about a strong resistance zone between 50-60.

Realty sector stocks are not exactly my favourite. Most managements show lack of transparency in transactions, try to take buyers for a ride, use dubious accounting practices, and generate tons of 'black' money. I doubt if Unitech is an exception.

Many investors fell for the hype about realty stocks in 2007 and joined the bandwagon late at highly inflated prices. Some may be holding on, hoping to get back their 'buy price'. The more adventurous among them may have 'averaged down' and put more good money after bad.

Let us look at the 1 year bar chart pattern of Unitech Ltd to check if there has been any significant improvement:-

Unitech_Oct2109

The stock moved above the 50 day EMA shortly after I wrote the earlier post, and faced resistance at the 50-60 level twice before breaking above it. The resistance level then became a support level, as the stock corrected from 104 on Jun 5 '09 to 61 on Jul 9 '09. The 43 point drop corrected the rise from the bottom of 22 by 52% - close enough to the 50% Fibonacci retracement level.

The Unitech stock has subsequently been in a sideways consolidation pattern and made a higher top of 118 on Sep 8 '09. The rise from 22 to 118 is a spectacular gain of 436% in less than a year. But before one gets too excited about this rise, one should note that this 'spectacular' rise has merely retraced 18% of the entire bear market fall of 525 points.

The stock is just 6 points above its 50 day EMA, which in turn is just 7 points above the 200 day EMA. Even a mild correction can drop the stock below its long term moving average.

The RSI is just below the 50% level, but is rising. The MACD is barely positive. The on-balance volume is flat - indicating that buyers and sellers are evenly matched at current price. The slow stochastic has moved above the 50% level. The technical indicators are signalling the indecision amongst investors.

Bottomline? The stock chart pattern of Unitech Ltd has recovered well from its bottom, but is unlikely to give further huge returns any time soon. A stock to be avoided.

2 comments:

Admin said...

Sir,

Please provide the updates on short term and long term view of Unitech.

Has it completely bottomed out or should we wait for some more time to take an entry. Is it a wise decision to look at this counter keeping in current situations.

Thanks
Shashank

Subhankar said...

The stock has fallen below its Mar '09 low - and seems to be sliding into oblivion with no signs of a turn-around.

The company shows 'profits' but generates huge negative cash flows. The realty sector has been a wealth destroyer, and Unitech is no exception.