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Wednesday, February 3, 2010

Stock Chart Pattern - Maharashtra Seamless (An Update)

The stock chart pattern of Maharashtra Seamless was looking overbought when I had looked at it in May '09, just after the election results were declared. I had advised medium-term investors to await a possible correction to the 200-220 level before entering this cash rich, low debt, fundamentally strong company.

Let us have a look at the 9 months bar chart pattern of Maharashtra Seamless to see how investors who entered the stock may have fared:-

Mah Seamless_Feb0310

Instead of correcting in May '09, the stock consolidated in a flag-like pattern between 230-260 before another sharp up move took it to 325 on Jun 4 '09. A 5 weeks long correction brought the stock down to the 230 level - below the 50 day EMA.

A steady up move followed as the stock received good support from the 50 day EMA as it moved all the way to a high of 393 on Jan 18 '10. The stock faced strong headwinds and dipped more than 15% to 332 - below the 50 day EMA again - on Jan 29 '10. It is currently attempting a pull back.

Mah Seamless_Feb0310_2

In the longer-term chart (above), the stock had made a very bearish triple-top pattern - 675 in Jul '07, 672 in Sep '07 and 660 in Jan '08 - before collapsing in a heap to a low of 112 in Mar '09. The fall of 563 points from 675 to 112 was a huge 83% drop.

Is there any reason why the stock faced corrective moves when it reached 325 and 393? Regular readers of my technical analysis of chart patterns should not have any difficulty in answering that question.

If you are new to technical analysis, 325 and 393 are almost exactly the 38.2% and 50% Fibonacci retracement levels of the 563 points fall from the top. Here is why: (112 + 563 x 0.382 = 327); and (112 + 563 x 0.5 = 393.5). Those levels tend to act as resistance levels.

So, what should investors do now? The prudent ones may like to wait till the stock convincingly clears 393 before entering. They can also wait for a correction down to the 200 day EMA (at 300).

Note the interesting pattern of the OBV indicator. It has not fallen during the recent (and earlier) corrections and continues to move up - a sign of accumulation by knowledgeable investors. The MACD is in negative territory and below the signal line, but is attempting to move up. The RSI fell below the 50% level but has turned back upwards.

Bottomline? The stock chart pattern of Maharashtra Seamless is looking bullish. On crossing 393, it can move up to 460. On the down side, expect support in the 260-300 zone. This is a good mid-cap stock for long-term portfolios.

2 comments:

kaku said...

any update on this stock. it has seen lot of volatility in past few months.

Subhankar said...

The stock almost achieved target by reaching 455 on Nov 2 '10. It is correcting with the market and has fallen below the 100 day EMA.

The bullish pattern of higher tops and bottoms is in tact. The current dip can be used to accumulate, with a stop-loss at 359.