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Wednesday, April 21, 2010

Stock Chart Pattern - Indraprastha Gas (An Update)

Back in July '09 when I analysed the stock chart pattern of Indraprastha Gas, it had risen from its bear market bottom to a high of 154. A double-top like formation dropped the stock down to 126.

The stock had received support from the 50 day EMA and the up trend line from the bear market bottom. I had then suggested a minimum upside target of 180.

It is time for another look at the one year bar chart pattern of Indraprastha Gas, a fundamentally strong, debt free, dividend paying PSU growth stock with a near monopoly in gas supply to the greater Delhi area:

Indraprastha Gas_Apr2110

Note the two tops (one in Jun '09 and the other in Jul '09) at 154 near the lower bottom corner of the stock chart. After a brief correction, the stock quickly rose to attain the suggested minimum target by hitting 182 intra-day on Aug 14 '09.

Now, 182 happened to be the bull market top made in Jan '08. So it wasn't surprising that the Indraprastha Gas stock came under selling pressure at the previous all-time high. The stock slid down to 152, followed by a three and a half months long sideways consolidation.

Finally, on Dec 2 '09, the stock broke out of the sideways consolidation to make a new high of 192 and then made a bullish pattern of higher tops and bottoms culminating in a new high of 248 on Feb 6 '10.

Check out the RSI, MACD and slow stochastic in early Feb '10. They all made lower tops as the stock made a new high. The negative divergences from all three indicators led to a 10 weeks long sideways consolidation.

Today's trading was interesting, to say the least. The stock tried to break out from the long consolidation, tested the Feb 6 '10 high of 248 but fell back into the consolidation zone. But today's volumes were much lower than that of Feb 6 '10.

That meets the first criterion of a bearish double-top formation. The second criterion - a reasonable time-gap between the two tops - has also been met. The third and final confirmation will come if and when the stock drops below 205, which is the lowest price point between the two tops.

There is nothing wrong with the stock fundamentally. In fact, all serious long-term investors should think about adding this stock to their portfolios. But this is a good example of how technical analysis can help to time entry and exit.

Bottomline? The stock chart pattern of Indraprastha Gas shows a strong bull rally that is facing bearish headwinds. Existing holders can book partial profits. New entrants can await a likely dip, or buy after a convincing move above 248.

Related Post

Reversal Chart Patterns - Double Top and Triple Top

4 comments:

thega said...

sir

today break out on hike in gas price, can we buy now ?

sumitra

Subhankar said...

Hi Sumitra

Since I wrote the post in April '10, the stock corrected as expected. It received support around 215-216, from the long-term up trend line (drawn from the May '09 bottom onwards).

A possible double-top got averted and the stock has resumed its up move making higher tops and bottoms.

An entry is certainly warranted because of the upward break out on good volumes - but please don't bet the barn. The bull phase is more than a year old. Buy a small quantity and add on dips.

kaku said...

another company in petro biz - Shiv Vani oils - it recently hit a low on account of disappointing q2 results.

would you qualify it as a good buy at this time?

Subhankar said...

Not much idea about the company, kaku. Petrochemicals is not my area of competence.

Indraprastha Gas is more of a monopoly marketing play.