Wednesday, December 16, 2009

Stock Chart Pattern - Infosys Ltd. (An update)

When I last took a look at the stock chart pattern of Infosys Ltd back in Apr '09, it had made a bullish saucer-like bottoming pattern but was under bear attack due to disappointing Q4 '09 results.

But you just can't keep a good company down. This impeccably and transparently managed company that has set the benchmark for financial reporting, and a perennial FII favourite, has since embarked on a strong rally that recently reached a life-time high (adjusted for bonus issues).

Let us have a look at the 9 months bar chart pattern of Infosys Ltd:-


After hitting a high of 2400 in Sep '09, the stock entered a 6 weeks period of consolidation within a 'flag' pattern formation, which is a continuation pattern. That means the stock usually resumes the earlier (bullish) trend.

The 50 day EMA provided good support and the stock smartly broke out upwards from the 'flag' pattern and resumed the bull rally - almost doubling in value from the low of Apr '09.

The technical indicators show that there may be some more steam left in the rally. All three EMAs are moving up and the stock price is above them. The slow stochastic, MFI and RSI have just entered their overbought zones.

The stock hasn't been able to remain in the overbought zones for any length of time in the past 9 months. Also, the 50 day EMA is more than 350 points above the 200 day EMA. So a correction can be round the corner.

Bottomline? Existing holders can book profits partially. New investors can enter at the next dip. This is a stock that deserves to be in every long-term investor's portfolio.


Jasi said...

Subhankar Sir, thanks for analyzing infy ... even I hold it in my long term portfolio.
Btw I wanted to share something with you just to get your thoughts. Im still in early days of investing, as far as learning is concerned :) As a result my portfolio has over the time swelled and swelled. Ive ended up with a lot of non performers that are languishing way way below the buy price.

I want to change it, I want to over-haul my portfolio and trim it down considerably.

What do you think I should do with stocks that are quoting way below my buy price, some as low as 50-90%? Does it make sense to sell them and employ capital elsewhere? But then, I might not get a lot out of it anyway if I sell now so wudnt I be better off staying invested in them?

Confused ... very confused :)

Jasi said...

One more thing! This is something that comes to my mind often.

Given the expertise and research fund houses put in, why should one NOT invest in MFs and get directly in to stocks, thereby, save himself from all the exercise?
How is investing in stocks directly more rewarding?

Subhankar said...

Your problem is typical of many new investors. Learning to set stop-losses and being disciplined about selling when the stop-loss is hit will ensure that big losses are avoided.

About 10-15 stocks is all that most investors can keep track of. Let those be the best 10-15 stocks in the market. If you have any such stocks, hold them even if bought at higher prices. The rest can be disposed off. Remember that your buy price is known only to you. The market is oblivious to it.

For investors who do not have the time, inclination or competence to pick their own stocks, the best bet is to buy a good index fund on a regular basis.

Jasi said...

Thanks a ton Sir for your insight! Guess its time to trim the fat :)

Subhankar said...

You're welcome, Jasi.

Always a good idea to trim excess fat - from your portfolio and your midriff.

Ajay said...

Now that it is down by about 30% from its peak, should we accumulate it sir. Is there any change in fundamentals?

Subhankar said...

The stock has fallen with a huge gap after declaring not-so-great Q4 results. The gap may provide strong resistance to any up moves. It may be better to let the selling pressure abate before entering.

The biggest change in fundamentals is the policy of appointing CEOs by rotation from the original promoters. Not all have the leadership skills and dynamism to overcome a competitive and constantly changing environment. The endeavour to get into high-margin consulting business has not been very successful. The lack of a large domestic business base has not helped during a period of global economic slowdown.