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Wednesday, April 7, 2010

Stock Chart Pattern - Indian Hotels (An Update)

The previous look at the stock chart pattern of Indian Hotels back in June '09 didn't seem particularly exciting for would-be investors in this leading company of the Indian hotels sector.

Why? Because the bull rally from the Mar '09 low was showing signs of fizzling out, consolidating at the 65-66 level after touching a high of 80. I had recommended that it was a good entry point for patient investors.

The woes of the hotels sector still continues, as occupancy rates and average room rates (ARRs) have not recovered to a great extent following the global economic downturn. Large capacity addition in the hotels sector is also likely to contribute to depressed ARRs.

The high-end properties of Indian Hotels depend a lot on big spending overseas business visitors and tourists. The flagship Taj Hotel that bore the brunt of the Nov '08 terrorist attack is yet to be fully operational. International properties of the largest Indian hotel chain are also not doing great. This led to disappointing Q3 '09 results.

The company is trying to de-risk its business model by concentrating on the more reasonably priced Ginger brand, and by doing away with the Residency brand. The newer Vivanta brand has been positioned in-between the Taj and the Gateway brands.

The current capacity of around 11500 rooms will be increased to 20000 rooms by financial year 2011. The number of Taj Safari jungle lodges (currently 4 - all in Madhya Pradesh) will be increased to 10 across the country. That should contribute to an increase in revenues and profits in the next couple of years.

A look at the 2 years bar chart pattern of Indian Hotels clearly shows that smart investors have been accumulating the stock:-

Indian Hotels_Apr0710

The stock chart consolidated in a triangle pattern between Jun '09 and Sept '09 before an upward break out on good volumes took it to a high of 110 in Jan '10. Why did it halt at 110? No prizes for correct guesses. It happens to be the 50% Fibonacci retracement level of the entire bear market fall from 180 to 35.

A correction ensued as the stock dropped to make two intra-day bottoms at 85 - below both the 20 day and 50 day EMAs. Note that both the MACD and RSI made lower tops as the stock hit a higher one. Negative divergences like these can be a signal for a correction - it happened in this case, but it may not happen always.

The double-bottom has led to a resumption of the up move that has taken the stock close to its Jan '10 high. If it can move above 110, it is likely to face resistance at 120 - the May '08 high. The 61.8% Fibonacci retracement level of the bear market fall is at 125.

The OBV indicator shows that there has been buying interest even during the correction in Jan '10. Those investors who heeded my advice to enter the stock at 65-66 and are still holding, can book partial profits if the stock hesitates near the 110-125 band. Long-term investors can keep a stop-loss at 100 and stay long. Any dips can be used to add to the holdings.

Bottomline? The stock chart pattern of Indian Hotels has risen steadily if not spectacularly. Crossing 125 convincingly will be the first indication that things are getting better. Full recovery in the fundamentals is still a year or two away. Patient investors will get their due rewards by holding on.

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