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Wednesday, November 4, 2009

Stock Chart Pattern - Hero Honda Ltd (An Update)

Seven months back, when the rest of the market was trying to emerge out of a long bear phase, the stock chart pattern of Hero Honda Ltd was in a full-blown bull phase, looking overbought after moving up from 630 (in Jul '08) to almost 1100 (in Mar '09).

A short correction to 1000 was followed by a sustained up move to 1550 in Jun '09. A decent correction to 1300 ended with a quick spike to the high of 1780 in Jul '09. A spectacular gain of 180% in one year.

Let us have a look at the 2 years bar chart pattern of Hero Honda Ltd:-


The stock has been in a consolidation phase since hitting the Jul '09 high of 1780, making a low of 1345 in Aug '09 - correcting 37.8% of the entire rise from 630 to 1780, just short of the Fibonacci retracement level of 38.2%. The subsequent rally failed to make a new high and stopped short at 1746.

A 'rounding top' like bearish pattern coincided with the on-going correction in the Sensex. One can expect the stock to correct some more - to the 200 day EMA at 1350, and below that, to the 50% Fibonacci retracement level of 1200. The zone between 1200-1350 may provide good opportunities to enter this fundamentally strong stock.

The RSI has just entered the oversold zone. The MACD is in the negative zone and below the signal line. The OBV has dipped marginally. The slow stochastic is just above the oversold region. The weakness in the stock is getting reflected in the bearish technical indicators.

Q2 '09 results were fantastic. 27% increase in top-line from 3200 Cr to 4060 Cr. Most of the increase went to the bottomline, which nearly doubled from 306 Cr to 597 Cr - an all-time quarterly high. With a 59% share of the domestic 2-wheeler market, the company sold 1 million units for the second quarter in a row.

Product and branding innovations and operational efficiency were the main reasons for the excellent performance. Strong cash flows from operations, growing profits and dividends, low debt/equity ratio makes this a must-have in any long-term investor's portfolio.

Bottomline? The stock chart pattern of Hero Honda Ltd is going through a much-needed correction, providing a good opportunity for serious investors to enter.

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