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Wednesday, February 10, 2010

Stock Chart Pattern - IFCI Ltd (An Update)

My previous look at the stock chart pattern of IFCI Ltd was in the last week of May '09. This trader's favourite stock had risen sharply to 50, where I had expected some resistance. After a brief consolidation in a triangle pattern, the stock spurted to 60, where it ran into longer term resistance from the May-Jun '08 highs.

The one year bar chart of IFCI Ltd has since formed a very interesting bullish pattern:-


The stock corrected to 46 on Jun 9 '09. A 4 weeks sideways consolidation between 48 and 56 followed, after which there was a rapid fall to 37. A 'V' shaped recovery and a gradual rise afterwards took the stock back to test its earlier high in Sep '09.

Several attempts to break the resistance at 60 was met with profit booking and the stock corrected down and made a higher low of 41 in Nov '09, where it received good support from the 200 day EMA.

Another upward rally took the stock back to 60 on Jan 8 '10. More profit booking caused a drop towards the long-term moving average. Once again, the stock received good support at the 200 day EMA and made a higher low of 46.

At today's close, the IFCI stock has given precisely zero returns in more than 8 months since my previous post. So why am I discussing about this stock?

It is because of the bullish 'ascending triangle' pattern being formed (with a flat top at 60 and an upward sloping trend line connecting the higher lows). A break out can take the stock to 70, and even higher.

That is not the only reason for being bullish. Notice the higher volumes on up days that has caused the OBV to keep moving higher even as the stock has hardly gained anything. That is a sign of 'accumulation'.

The MACD is marginally negative and below the signal line. The RSI is below the 50% level. The 20 day EMA is below the 50 day EMA. All these indicate short-term bearishness, which could lead to another drop to the 200 day EMA.

Bottomline? The stock chart pattern of IFCI Ltd is showing some weakness. This counter is not for the faint of heart and is strictly for speculation. If you want to take a punt on some sort of a restructuring of its business in the near future, use any falls to enter. Serious investors should stay miles away.


Alkesh said...

These stocks are very temptative...
I bought it at 100 sold it at 50,, couldnt buy at 20 .. & now its up again..

seeing your analysis, will take risk of 5k.. :-) lets wait & watch for 70

Subhankar said...

Such risky stocks can easily burn a hole through the pocket, Alkesh.

Notice the price spurt from 25 to 60, and then a prolonged sideways movement. A similar spurt can take it past 60. When? That's the million dollar question!

Mitran said...

Subhankar ji,
Could you plz look at the technicals of Tata Power. Is the right level to accumulate, because without any change in fundamentals, the stock is down by 15% MoM.

rahulbhaiya said...

Whats your thought on IFCI for a long term bet as the company is out hunting for banking license and also looking for strategic investor???? Holding period for 5 years from today.

Subhankar said...

@Mitran: Sorry that your question has remained unanswered for so long.

Tata Power has been oscillating within a 300 point band between 1200 and 1500 for the past 16 months. One can trade the range, or pick up at 1200 for long-term.

Subhankar said...

@rahulbhaiya: IFCI's fundamentals have been improving, but it remains more of a speculative bet than a long-term investment.

The banking licence may or may not come. Even if it comes, it is unlikely that IFCI will transform itself into a HDFC Bank or ICICI Bank or Axis Bank. All three are better long-term investments than IFCI.