Wednesday, November 25, 2009

Stock Chart Pattern - Reliance Capital Ltd. (An Update)

When I looked at the stock chart pattern of Reliance Capital Ltd in Apr '09, it seemed to be lagging the BSE Sensex chart, but was recovering well from the bear market mauling. It was expected that the stock could hit the 600 mark in the short term.

The stock did hit the 600 mark in early May '09, where it struggled for a few sessions before the euphoria following the surprisingly positive election results propelled the stock past the 1000 mark.

Let us take a look at the one year bar chart pattern of Reliance Capital Ltd to assess whether it is a 'buy' or a 'sell' or a 'hold':-


The stock could not sustain above the 1000 mark for long. It was too steep a rise in too short a time. The correction in Jul '09 took the stock below its 50 day EMA, but it found support at the top of the 'gap' between 600 and 700.

A sharp jump took the stock near the 1000 mark, after which a sideways consolidation followed, with the 1000 level acting as a strong resistance. The Oct '09 correction took the stock below the 50 day and 200 day EMA, but for the second time the stock found support at the 700 level.

To assess the likely direction of the chart pattern, let us look at the technical indicators. The 50 day EMA has remained above the rising 200 day EMA, and the stock price is above both EMAs. So the bull rally is under no immediate threat.

The MACD has just inched into the positive zone and is above the signal line, which is mildly bullish. The slow stochastic has slipped below the 50% level with the %K below the %D, which is bearish. The OBV is moving sideways, indicating that the bulls and bears are evenly matched.

Bottomline? The stock chart pattern of Reliance Capital Ltd shows that the inconclusive battle between the bulls and bears is continuing, and may remain unresolved for some more time. Existing holders can stay invested with a stop-loss at 680. New entrants should await a convincing cross above the 1050 mark. Traders can play the 700-1000 range.


Chaitanya said...

Hi Subhankar,

What's ur view on Reliance Capital now. Why this stock is so battered? Is this just because it belongs to ADAG group?


Subhankar said...

Rel. Cap. has been falling for more than 2 years and has dropped below its Mar '09 low. The next likely supports are at 200, 170 and 150.

Why is the stock falling? May be because the investing public has finally woken up to the fact that the Ambanis have taken small investors for a ride for too long.

My aversion for any company with the word 'Reliance' in its name was mentioned in a post back in Jan '09 ('Why rely on Reliance?').