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Thursday, April 1, 2010

Stock Chart Pattern - Sanghvi Movers (An Update)

When I had a look at the stock chart pattern of Sanghvi Movers back in June '09, it was forming what looked like a bearish rounding top pattern - which if formed, had downside targets of 120-130. I had also mentioned about the possibility of 100% returns within one year from the low levels mentioned. That gave an upward target of 240-260.

It has been more than 9 months and may be a good time for an update. So let us have a look at the 1 year bar chart pattern of  Sanghvi Movers:-

Sanghvi Movers_Apr0110

The rounding top never got fully formed, but it was a corrective move nevertheless that took the stock from 199 in Jun '09 down to 138 in Aug '09. That is as low as the stock has been since.

It is interesting to note the technical analysis indicators at that time. The slow stochastic gave a bullish cross of the %K above the %D line as they emerged out of the oversold zone. The RSI bounced off the oversold zone. The MACD also gave a bullish cross above the signal line in the negative zone.

All three indicators had simultaneously signalled a 'buy' (though the MACD - being a 'lagging indicator' - gave the ' buy' signal a few days later). From technical analysis standpoint, this confluence of 'buy signals' is more important than any one or two indicators giving individual 'buy signals'.

Subsequently, as the stock moved up steadily interspersed with profit booking, the slow stochastic entered and emerged from the oversold zone a few times. Each time there was an up move of different duration. One reason why I like this indicator a lot. But the RSI never touched the oversold zone. The MACD has failed to emerge out of the negative zone after entering it in Feb '10.

For long-term investors, identifying such entry points makes the difference between pocketing a 10-20% gain or a 100% gain. So what happened with the upward price target? Even though the stock never went down to the 120-130 band, it met the target within 7 months by hitting 272 in Jan '10.

Note that as the stock rose from 180 to 272 during Dec '09 - Jan '10, making bullish higher tops and bottoms, the slow stochastic and MACD made lower tops, and the RSI remained flat. All three indicators were showing negative divergence.

No wonder a correction has followed. The stock made lower tops and a flat bottom at 205 during the Jan '10 - Mar '10 period. That is a bearish 'descending triangle' from which the likely break is downwards. If it does break down, it may test the previous low of 138. On the up side, 240 will be a resistance level.

Q3 results showed a small increase in sales and gross profits on a quarter-on-quarter basis but a drop in both parameters on a year-on-year basis. The debt burden is beginning to hurt due to the large interest payments.

Bottomline? The stock chart pattern of Sanghvi Movers is showing some weakness after a splendid rally. Remember that this is a Rs 2 face value stock. Existing holders can remain invested with a stop-loss at 190. New entry should be avoided for now.

6 comments:

venkat said...

Can the price points closer to 200 DMA be used for fresh entry?
--dora

Subhankar said...

If the stock breaks down from the descending triangle, the downward target will be 138 (which coincides with its previous low). Why? 272 - 205 = 67; 205 - 67 = 138.

The 200 day EMA has been suggested as a stop-loss for existing holders. A token entry can be made there I suppose - but lower levels may be available if one is patient.

scorpio said...

how does a 2 Rs Face value matter?
P/E and EPS will not change? only liquidity in the stock will change and investor perception will be stock is cheaper only based on price.

Subhankar said...

It is all a matter of perception. If you didn't know it was a Rs 2 face value stock then Rs 200 may seem a reasonable price for the stock. When you realise that if the face value was Rs 10 the stock would be trading above Rs 1000, then the stock price may not seem reasonable any more!

kaku said...

Sanghvi Movers has breached your stop loss reco level of 190. its Q2 profits are up 11% yoy. any updates?

Subhankar said...

After touching a peak in Jan '10, the stock has been in a down trend, making lower tops and bottoms.

The falling 200 day EMA is providing resistance while the stock has been consolidating sideways. A 'false' break out above the 200 day EMA on strong volumes in Sep '10 was met immediately with sales.

The possibility of the stock falling further can't be ruled out. On the upside, the stock needs to convincingly move above the 200-210 resistance zone. Avoid.