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Wednesday, June 23, 2010

Stock Chart Pattern - Jagran Prakashan (An Update)

The stock chart pattern of Jagran Prakashan was analysed 10 months back, after it had fallen from 170 to 40 during the bear market. The stock made a bullish rounding bottom pattern and rose to 105, which was the 50% Fibonacci retracement level of the entire fall.

The levels of 120, 140 and 170 (the bull market top) were mentioned as possible up sides. I often face questions from readers about different stocks and their levels. Where can it fall? What is the up side?

The simplest way to find out is to draw longer-term support-resistance lines. More often than not, these longer-term support-resistance lines provide clues to entry and exit points.

In the 3 years bar chart pattern of Jagran Prakashan, several support-resistance lines have been drawn, and the purpose of each will become clear soon:

JagranPrakasan_Jun2310

The level of 105, touched in Jul '09, was not only the 50% Fibonacci retracement level of the bear market fall but also a long-term support-resistance level. Expectedly, there was some selling. The stock fell to 85 in Aug '09.

That level corresponded with another longer-term support-resistance line, and previous tops made in Jun '09. It received support, moved up to test the 105 level again, moved down to 92 and then spent about 2 months oscillating near the 105 level.

It eventually broke upwards out of the sideways consolidation zone and touched 120 in Oct '09. Almost immediately, it corrected down to the 105 level. The 120 level also happens to be the trend deciding 61.8% Fibonacci retracement level of the entire bear market fall!

[For those who don't know (or remember) how to calculate Fibonacci retracement levels, here is an example:

170 - 40 = 130 (the entire bear market fall); 0.618 x 130 = 80; 40 + 80 = 120.]

The stock bounced up only to struggle around the 120 level for a month before moving up to touch 142 twice - in end-Dec '09 and early-Jan '10. Here it faced resistance from another longer-term support-resistance level.

Note that while the stock was making higher tops from Jun '09 to early-Jan '10 (marked by the upward sloping line), the technical indicators were all making lower tops. The combined negative divergences prevented the stock from moving up any further.

After dropping down to the 120 level by end-Jan '10, the stock consolidated for 3 months around it and then fell below the 200 day MA to the 105 level in May '10. Once again it bounced up to 120, and after a brief struggle, moved up to 130. At today's closing price of 125, it is trading at a P/E of 21.7.

Fundamentally, the company continues to do well, with low debt, positive cash flows from operations, decent margins, and can be added on any dip below 105. Closer to 85 will provide a better 'Margin of Safety'.

Bottomline? The stock chart pattern of Jagran Prakashan is almost a text book example of how a stock behaves near long-term support-resistance levels. Existing holders can book part profits. New entrants can wait for likely lower levels.

Related Posts

About Support and Resistance levels in stock chart patterns
What exactly is the Margin of Safety?

2 comments:

peterson said...

Wonderful post!!
Thanks for sharing this with us!!

____________________________

Johnpeter
Buy Penny Stocks

Subhankar said...

Thanks for stopping by and leaving a comment.