Stock Chart Pattern - Exide Industries (An Update)

My previous look at the stock chart pattern of Exide Industries was back in July '09. This stalwart market-leader from the auto-ancilliary sector had formed a bullish 'cup and handle' pattern and almost retraced the entire bear market fall - outperforming the Sensex.

The technical indicators were looking overbought. A widening gap between the stock's 50 day EMA and 200 day EMA, negative divergences in the RSI and MACD, and the proximity to the Jan '08 high of 91 led me to conclude that a correction was around the corner.

Before getting into the technical analysis, I would like to mention that this is just the kind of stock that a small investor should have on his 'buy list' - to be acquired in small quantities during market corrections for long-term investment.

Even if you had bought this stock at the peak of the last bull market, you would be sitting on a profit today. Not many stocks, including some perennial market favourites, can boast of such a performance.

Let us now look at the one year bar chart pattern of Exide Industries:

The stock hit a high of 93 on Aug 4 '09 and quickly corrected down to 79 on Aug 7 '09. That has been its lowest point since then. It struggled to cross the Jan '08 high of 91 for a few days, before moving up to make a double top at 97 (on Aug 31 and Sep 2 '09).

The stock corrected once again, and consolidated sideways in a band between 86 and 93 for a month, taking support from the 50 day MA. A high-volume break out from the consolidation zone on Oct 9 '09 was the beginning of the last stage of the up move.

The stock touched a high of 124 (on Nov 16 '09), corrected down to 100 (on Nov 27 '09) where it got support once again from the 50 day MA, and then entered a sideways consolidation pattern between 105 and 128.

The consolidation has continued for more than 6 months during which it made two tops at 128 - one on Jan 12 '10 and the other on Mar 31 '10. The 11 weeks gap between the two tops, and the comparatively higher volumes during the first top leaves the door open for a bearish double-top pattern. The confirmation will come only on a break below 105, which is the valley between the two tops.

Note that the recent attempt to move below 105 failed. The consolidation is expected to continue till the stock either breaks above 128 on higher volumes or falls below 105. The technical indicators are giving mixed signals.

The MACD is showing negative divergence. It has crossed above the signal line in the negative zone but is yet to turn positive. The RSI has turned down after edging above the 50% level. The slow stochastic has entered the overbought zone. The contrasting indications are not unusual during a period of sideways consolidation.

Bottomline? The stock chart pattern of Exide Industries is consolidating in a band above its Jan '08 bull market high, clearly outperforming the Sensex. Existing holders can stay invested with a stop-loss at 105. Fresh entry can be made on a break above 128 or a drop to the 90-96 area.