Wednesday, January 27, 2010

Stock Chart Pattern - Hindustan Unilever (An Update)

When I analysed the stock chart pattern of Hindustan Unilever more than 8 months ago, this was one of my comments:-

'If you want to preserve your capital during vicious bear attacks and like steady returns from tax-free dividends, there are very few stocks that can match HUL. This is not a stock for day traders. But there are plenty of opportunities for longer term trading.'

Now that the world indices are facing a co-ordinated bear attack by the FIIs, it may be a good time for a re-look at one of the favourite defensive stocks of all time.

Let us peruse the 9 months bar chart pattern of Hindustan Unilever (HUL) to check how the stock chart has played out since May '09:-


The stock peaked at 306 in Jul '09 on high volumes, but a 'reversal day' formation ended with a 3 weeks long sharp correction to 248 in Aug '09, where it got good support from the 200 day EMA. The stock subsequently made lower tops of 295 in Oct '09 and 288 in Nov '09 before sliding down below the 200 day EMA, which is very bearish.

But technical analysis requires verification from several other indicators for a confirmation. Look at the On-balance Volume (OBV). While the stock was making lower tops in Oct and Nov '09, the OBV was making higher ones - a positive divergence.

Even though the stock dropped below the 200 day EMA, it made a higher bottom of 252 last Friday, Jan 22 '10 and is trying to move up above the long-term moving average.  Note that after falling below the 50 day EMA, the 20 day EMA is resting on the 200 day EMA.

The RSI bounced off the oversold zone and reached the 50% level before dipping down. The OBV has been moving sideways with an upward bias as the stock corrected for the past two months. The MACD is in negative territory, but has given a bullish cross above its signal line.

Are you all confused with the conflicting bullish and bearish signals? Time to take a look at a longer term chart - a 3 years closing chart pattern of HUL which gives a completely different picture:-


Now you know why I keep harping about long-term investing! The bull rally in the HUL stock that started in 2007, and progressed upwards right through the bear market in 2008, remains in tact.

The last 2 months' corrective move has merely brought the stock down towards the lower end of the upward trending channel (which can be drawn by connecting the tops and bottoms of the 3 years chart pattern) - giving an opportunity to enter.

Bottomline? With the Sensex undergoing a much needed correction, the HUL stock chart pattern looks poised for another rise within its bullish up-trend channel. Existing investors should hold on. New entrants can expect a 25% gain in the near term - but remember to maintain a tight stop-loss.


KKR said...

As per you blog, it is nice to have for LT. So why should keep stop loss. may i will move my stop loss after every increment of 10%.

Subhankar said...

Good question - why stop-loss for long term?

Stop-loss is to protect the down side, and there are three reasons for doing that now. First, the bull rally in the stock has lasted 3 years already. Two, Sensex is in the middle of a correction. Three, Sep-Dec '09 quarterly results haven't been that great.

KKR said...

it was down by 5% in last trading session. what is going with this scrip? moreover marico also not climbing up. in the correction mode, everybody tries to have defensive play with fmcg and pharma. but i am not seeing here. it is so random

Subhankar said...

The market often defies logic. Now you know why I had mentioned about stop-loss for new entrants!

Unknown said...

HUL is going down form long term support line of 260.

It has touched the 230 and now at 242.
RSI and MACD has positive divergence by OBV is going down.

Volumes are extremely negetive.

Would you advice to wait until situation become clear.

Or Very low OBV is the good opportunity to buy.
It has given break out from 200 day moving average.
Short term is looking good?

This all are your word but written by me sitting very far from you. Everything is being earned from you.
Please put your words on this.

Subhankar said...

Good observation, Chintan.

The long-term trend line joining the bottoms made since 2007 has been broken and after a pull back to the trend line the HUL stock has retreated again. Text book trend break signal.

The 50 day EMA has moved below the 200 day EMA and both moving averages are headed down with the stock below them. This is very bearish.

If the 220 level can't provide support, the stock could move down to 180.

rk77 said...

Many analysts had supported the view that HUL would touch 180 but it didn't. 220 provided it the support and it has slowly inched upwards. The aggressive AD campaign and the war of words with P&G may change the trend based on who wins the war! rk77

Subhankar said...

Good observation, Doc.

The stock bounced up after hitting 220 but hasn't gone anywhere. It is consolidating in a rectangular band between 220 and 246.

The break from the consolidation can go either way. If I was a gambling man, I'd bet on a break downwards. Why? Because the stock entered the consolidation zone during a down trend.