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Wednesday, July 28, 2010

Stock Chart Pattern - Havell's India (An Update)

The previous analysis of the stock chart pattern of Havell’s India was written 11 months back. The stock had entered a sideways consolidation pattern after more than tripling in value from its bear market low of 100.

A bullish ‘ascending triangle’ pattern was in the process of being formed, and I had advised investors to either buy during the consolidation phase, or after the break-out upwards. Readers who heeded my advice have more than doubled their investments in the intervening period.

There are several interesting technical patterns worth noting on the 1 year closing chart pattern of Havell’s India:

Havells_Jul2810 

The consolidation within the ‘ascending triangle’ (flat tops and rising bottoms) lasted a little more than 3 months – from Jun ‘09 till Sep ‘09 - before the first upward break out on an uptick in volumes occurred. This has been marked by the arrow on the left.

The stock price soon drifted back into the triangular consolidation area on much reduced volumes, took support at the up-trend line and the 50 day MA, and again broke out upwards in early Oct ‘09. Note that the volumes were a little lower during the second break out (marked by the arrow on the right) – which made the subsequent up move questionable.

In a classic example of a ‘bear trap’, a small head-and-shoulders pattern met its down-side target below the 50 day MA, and what looked like a ‘false break-out’ (highlighted by the blue oval) turned into a strong bull rally. Symmetrical triangles tend to be unreliable, as price break outs can happen in either direction. But ascending (and descending) triangles tend to be much more reliable for trend prediction.

Note that from Dec ‘09 to Apr ‘10, the stock made new highs on strong volumes – but the volume peaks were lower for each high. All three technical indicators – MACD, RSI, slow stochastic – made lower tops. The negative divergences warned about the 135 points (20%) correction that followed during Apr and May ‘10.

The stock has since made up the entire correction and gained more than 150 points to reach a new high of 692. It faced a long-term resistance level and has dipped down. A test of the Jan ‘08 high of 750 is on the cards.

The technical indicators are showing negative divergences again, making flat tops as the stock made a higher top. The stock may consolidate sideways or drop some more before attempting to climb to a new high.

Bottomline? The stock chart pattern of Havell’s India is in a strong bull market, as it is above its rising 50 day and 200 day MAs. Existing investors can hold, or book partial profits. New investors should refrain from entering so near its all-time high, and buy only after a correction.

4 comments:

renegade said...

waoo...awesome...finally, some depth reading with so many issues addressed with reasons for outliers data points...very nice,indeed

Subhankar said...

Thanks for your comments.

kaku said...

this stock was last studied when it was nearing 700. Since then it has lost 40% of its value and is at 400
its Q2 profit was 58 cr and Q1 profit at 53 cr.

Is it a significant dip to be considered in an investor's to-buy list for 'winter 2010'

Subhankar said...

Havell's touched an intra-day high of 892 on Oct 5 '10, shortly before it completed its 1:1 Bonus issue.

It is currently trading on ex-bonus basis - about 10% lower than its peak cum-bonus price.

This is a fundamentally strong stock facing a technical headwind. All dips can be used to accumulate slowly.