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Wednesday, March 24, 2010

Stock Chart Pattern - Voltas Ltd (An Update)

My previous look at the stock chart pattern of Voltas Ltd was back in June 2009. The stock of this fundamentally strong infrastructure company from the Tata group had a one way ride from the low of 31 in Mar '09 to a high of 146 in Jun '09 and was pausing to catch its breath at 122.

The technical indicators were hinting at a further correction down to the 90-100 zone, which could have provided a decent entry point for new investors who had missed the first part of the rally. It is time for an update, so let us have a look at the 1 year bar chart pattern of Voltas Ltd:-


The very next day (Jun 18 '09) after I wrote about the stock, it dropped to a low of 107, recovered and then tested the low by falling again to 109 on Jul 6 '09. That is the lowest price it has seen since, as it steadily moved up to make a high of 190 on Jan 20 '10.

A sharp correction took the stock down to the 150 mark, where it received strong support from a long-term support-resistance zone (145-150). A couple more tests of the support was followed by a sideways consolidation from which it has broken out upwards this week to touch a high of 180.

The 20 day EMA has moved above the 50 day EMA after spending a few days below it. The 200 day EMA is moving up nicely. The OBV remained pretty flat during the recent correction. The MACD has re-entered positive territory and is above the signal line. The RSI is rising above the 50% level. The technical indicators are hinting at a test of the recent high.

In the longer term 3 years chart, the stock made a mountain-like pattern from which most small and mid-cap stocks face a tough time in recovering:-


From the high of 267 made in Dec '07, the stock dropped a massive 88% to the low of 31 in Mar '09. The subsequent recovery to 190 in Jan '10 has already retraced 67% of the entire bear market fall.

The 61.8% Fibonacci retracement level of the entire bear market fall is at 146. Isn't it amazing that the stock had reacted exactly from this level back in June '09, and failed to clear that level convincingly till Aug 25 '09? No wonder in technical parlance the 0.618 ratio is some times called the 'golden ratio'.

Valuation wise the current stock price does not leave much in terms of 'margin of safety'. The Dec '09 quarterly result was nothing to write home about - both sales and profits were down quarter-on-quarter. But this conservatively managed company will surely return back to the growth path in the near future.

Bottomline? The stock chart pattern of Voltas Ltd is showing resilience at the 150 level. Existing holders can place a stop-loss at 150 and remain long. New entrants can use any dips to the 150 level to enter, with a tighter stop-loss. Those who are stuck in debt-ridden, operating cash flow negative stocks, like Punj Lloyd, can make a switch.

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