Wednesday, May 5, 2010

Stock Chart Pattern - Cranes Software (An Update)

The stock chart pattern of Cranes Software brings to mind a few stock market cliches:

1. Never try to catch a falling knife - you are supposed to wait for the knife to hit the table first, where it is likely to vibrate for a while; then it is safer to catch it. Question is: do you want to? (In the case of Cranes Software, some one seems to have removed the table which was covering a bottomless hole!)

2. Just because a stock is trading cheap, doesn't mean it can't trade cheaper.

3. Never average down in price; average up instead, because you don't know how low it can go.

The bar chart pattern of the Cranes Software stock from Mar '09 till date shows that ambition and the pursuit of growth needs to be tempered with financial prudence and patience - otherwise it may lead to annihilation:-


When I wrote about the stock back in July '09, it had made a double-bottom - 35 in Mar '09 and 34 in Jul '09 - and tried to move up. The resistance from the 50 day EMA proved too strong and the stock moved down again to 33.5 in Aug '09.

An up move on good volumes took the stock above the 50 day EMA, but a double-top at 48 proved to be its last hurrah. The stock dropped below the 50 day EMA in Oct '09 and has stayed below it till date.

A long-term support-resistance line has been drawn at 33. That level supported the stock's fall four times (marked by up arrows). This provides a classic example about support-resistance levels - which act more like a thin membrane than a spring. Each test of the support (or resistance) weakens it.

After three or four tests, the support (or resistance) tends to break. Thereafter, the support usually turns into a resistance, and a resistance turns into a support. Note that after the convincing break below the support of 33 in Dec '09, the level provided resistance in Jan '10 (marked by the down arrow), and then the bottom fell out of the stock.

The MACD has remained negative since Oct '09. The RSI and slow stochastic have once again entered oversold zones.

For those who did not read my earlier analysis in July '09, the concluding paragraph is quoted below:

"The stock chart pattern of Cranes Software is a reminder of what can happen if the pursuit of growth by acquisition leads to too much debt. Even good cash flows from operations may not be enough to survive. This is not for the faint-of-heart. Intrepid investors should maintain strict stop loss at Rs 33."

Technical analysis is not perfect. But if you don't know the basics, it can hurt you where it hurts the most in the stock market. Your wallet!

Bottomline? The stock chart pattern of Cranes Software shows that its glory days during the previous bull market are long gone, and now it is just a struggle for survival. If you own the stock, get out now. If you think it can't go lower, think again. It is game, set and match for the bears.

(Question for readers: what do you think the volume action may indicate?)

Related Post

About Support and Resistance levels in stock chart patterns


BULL'S EYE said...

Great Analysis, I remember the Moment you downgraded the stock and cautioned the Holders of this stock to get out, Soon Crane got battered to 18 odd levels from 33.antrysi

Unknown said...

Dear Sir,

It is really nice analysis, I have also tried to re make your yesterday's sensex chart. It's worth watching after preparing the chart. Also this is one of the classic example to understand the support and resistance.

As Joel said there are few other stocks like Suzlon, Telecom stocks, Unitech plunged along with Crane software.

Thank you very much for your great effort in teaching others...

Kind Regards,

Yuvi said...

Company is having a fundamental issue....they lost one of their major reslling franchises from Mathworks. Fundamentally company is in a value buy zone below 18 and very chaeap below 15-14 levels. Cranes sits on some huge IP in CAE once the toxic effrct of the frnachise loss passes on it would rebound to a fair value of around 40-50 in 12 months horizon.

Suresh said...

I suppose the volume action indicates Distribution (?)

Ruy Guy said...

Subhankar da, let me try to guess the answer to your query. I have see the OBV chart (not in your post) and I think that the big volumes are a result of some smart operators trying to up the ante and then distribute to hapless investors.
Please excuse me if I am completely wrong, as I am not a technical analyst at all.
Ruy Guy

Subhankar said...

@joel: Thanks for your comments. Cranes didn't get battered because I wrote about it! The timing of my post was fortuitous.

@Ramchandra: Appreciate your comments. As Buffett has said: the high tide lifts all boats; only when the tide goes out do we know who has been swimming naked.

@Yuvi: Thanks for the information, and you may well be right. Software selling franchises are almost never withdrawn unless there has been rank bad performance or non-payment for credit sales. Regardless of the reason, it is not encouraging.

@Suresh: Your effort at answering is commendable. Yes, it is distribution, but with a twist. High volumes on down days is a sign of distribution. But the volume spikes came on up days! Ruy's comment seems more appropriate.

@Ruy: Like Suresh, you have been brave in trying to answer the question. Please don't apologise for being brave! How will you learn if you don't make mistakes?

You don't need to be a technical analyst to use common sense. And your common sense is correct - as it usually is!

Subhankar said...

Those of you still holding the stock of Cranes Software - your time is up. The stock exchange authorities are going to suspend trading of the stock from Fri. Sep 3, '10 due to 'non-compliance'.

Sep 2, '10 will be the last day you can sell your holdings - IF you find a buyer.

Din said...

an update cranes soft now 3.80 !

Yuvi said...

You were very right, i took huge losses!! Sir, can you evaluate Brandhouse retails and come up with a analysis report

Subhankar said...

Thanks for your comment, Dinu.

This should be an example for those who buy a stock on the logic that 'the stock can't fall any lower'!

Subhankar said...

It takes courage to own up in an open forum, Yuvi.

We haven't entered the stock market to be right or wrong, but to make money. Acknowledging a mistake is the first step. Learning from, and not repeating, a mistake is a far bigger step.

Turning your back on fundamentally and technically weak stocks, like Brandhouse Retail, will ensure you never make big losses.

Subhankar said...

Things are going from bad to worse for Cranes Software:

Cranes Software faces Bank of New York Mellon's winding-up petition