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Wednesday, January 6, 2010

Stock Chart Pattern - Thermax Ltd.

The one year bar chart pattern of Thermax Ltd. shows a sharp rise between Mar '09 and May '09, followed by a steady rise that took the stock from a low of 151 in Mar '09 to the recent high of 650 in Nov '09 - a spectacular 330% rise for this mid-cap energy and environment company.


The stock had made a high of 968 back in Oct '07 from where it fell steeply by 84% to the low of 151 in Dec '08. The impressive rise during the year has retraced 61.1% of the entire bear market fall.

It is quite interesting how the Fibonacci retracement level of 61.8% (656 in this case) has proved to be a strong resistance level for the Thermax Ltd. stock. There has been four attempts in the last 2 months to cross the level, and each time the bears managed to stop the bull rampage.

That is not the only point of concern. In the 2 year charts, there is a resistance zone between 650-700 that the stock needs to cross decisively. The negative divergences in the MACD and RSI are also evident. The stock has been correcting soon after the RSI entered the overbought zone (which it is about to do again).

The stock has received good support from the 50 day EMA during recent corrections, and there is no reason to believe that any correction will be deeper. In case the stock corrects more, the zone between the 450 level and the 200 day EMA should provide stronger support.

All three EMAs are rising and the stock is above them. The OBV is also rising, indicating buying support. There is also a bullish 'ascending triangle' pattern forming. So the bull rally in the Thermax Ltd. stock is under no great threat.

A fundamentally strong, debt-free, regular dividend payer with positive cash flows from operations that has funded its expansion activities mostly from internal accruals - just the kind of well-managed company that should adorn the portfolio of long-term investors.

The company offers products and services in the field of power generation, environment protection and water management - all areas currently fancied by investors. No wonder this Rs 2 face-value stock is trading at a high P/E of 26.5 at today's closing price of 640.

Bottomline? The stock chart pattern of Thermax Ltd. shows that the bulls are in control. The time to add this stock was during Mar-Apr '09. New entrants should wait for a decent correction, as valuations are looking a bit stretched. Existing holders can book partial profits, but should stay invested.

(Thanks to readers 'VJ' and 'The Visitor' for suggesting this stock.)


The Visitor said...

Hi Subhankar,

Thanks for the analysis of Thermax. It is a part of my core long term portfolio.

Jasi said...

Yep, same here! I like Thermax and it is in my core portfolio.
Infact, I would like to point Crompton Greaves out as well. It also has good profit growth, cash flows, dividend payout and is almost debt free!
Subhankar Sir may I request your views on CG too.

Alkesh said...

hello Subhankar ji,

very happy new year to you and family.

We really dont know how much up it will go. I dont hold any stocks but lets say I have 100 shares and I book 50 stocks here. now what if it goes to 700? If i keep booking partial profit at 850, i will be out of stock!

and I dont book profit.. then I will stuck in as correction comes..
If I follow technical.. many times i got it wrong..
Thats why stock market is confusing for me

Tushar Bihani said...

Concise and very useful analysis of this stock.

Avinash Upadhyay said...

Very useful analysis. I have this stock in my core long term portfolio. And even though your advice of partial profit booking rings so true, I am not going to do it since I sink or sail with this stock.

Subhankar said...

@TV: You're welcome.

@Jasi: That's a good stock for any long-term investor to hold. Will take a look at Crompton Greaves.

@Alkesh: Very pleased to reciprocate your New Year greetings.

I do appreciate the problem you've mentioned. One way to solve it is to have a long-term outlook. That way you won't think about selling till the long-term price targets are reached. Also, have an asset allocation plan. That will help you to determine how much to sell and when to buy back.

One needs a multi-pronged approach towards investments - combining fundamental and technical analysis with a disciplined adherence to an asset allocation plan.

@Tushar: Appreciate your comments.

@Avinash: Thanks. One big advantage of being a long-term investor is that you don't need to sell a fundamentally strong stock in your core portfolio if you don't want to.