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Wednesday, December 30, 2009

Stock Chart Pattern - DLF Ltd. (An Update)

The previous look at the stock chart pattern of DLF Ltd. in Apr '09 had shown a nice saucer-like bottoming pattern after a near 90% fall from the top of 1225 on Jan 15 '08 to the bottom of 124 on Feb 4 '09.

The volumes were increasing as the stock struggled to cross the 250 level, after gaining 100% from the Feb '09 low. But I had concluded my analysis with the following comments:-

'If you haven't got rid of your DLF holding yet, you may get one more chance to do so. There is a possibility that this rally is taking a pause before trying to move higher again. But please do not harbour hopes about DLF reaching 1000 levels.'

Why and how did I arrive at that conclusion? Any stock that falls 90% from the top faces a lot of trouble getting back on its feet. When the stock belongs to an unreliable and unregulated sector which generates a large amount of 'black' money transactions, the chances of recovery are that much slimmer.

The last straw was the discovery of fraudulent profit booking by the company who were 'selling' to a subsidiary without getting any payment in return.

Let us take a look at the 9 months bar chart pattern of DLF Ltd.:-

DLF_Dec3009

There is something quite interesting at the left-most part of the DLF stock chart. Notice the consolidation during Apr-May '09 near the 250 mark as the OBV indicator kept rising. Then the massive volumes on a down day (May 13 '09).

Then, on the next four trading sessions, the stock jumped vertically upwards from a low of 222 on May 14 '09 to a high of 423 on May 19 '09. That was a great chance for existing holders to get out.

The stock did make a high of 491 as recently as Oct 21 '09, but that up move was not supported by the technical indicators. The OBV, MACD and RSI all moved sideways, and failed to make new tops.

The rise to 491 from the low of 124 retraced just 33.3% of the entire bear market fall, not even reaching the 38.2% Fibonacci retracement level. Technically, it means that the stock remains in a bear market.

The correction from the 52 week high has twice received support from the 200 day EMA - which is a small solace for the bulls.  The stock is struggling to clear the resistance from a falling 20 day EMA. The 50 day EMA is also falling.

The MACD is in negative zone and the RSI is below the 50% level, so expect the correction to continue.

Bottomline? The stock chart pattern of DLF Ltd. does not hold out much hope for the bulls. If you are still stuck at higher prices, continuing to hold may increase your losses. Investors should not go anywhere near this stock.

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