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Wednesday, September 1, 2010

Stock Chart Pattern – SpiceJet (An Update)

When I had written about the stock chart pattern of SpiceJet back in Oct ‘09, things were looking good technically and the fundamentals were beginning to improve. The company was in good hands and the business outlook was improving day-by-day.

The airline industry is back in the headlines again. The laggard, cash-strapped, Kingfisher Airlines has got a lifeline with a large cash infusion (thanks probably to all the empty Kingfisher beer bottles in the various watering holes around the country). So, an update about SpiceJet seems to be in order.

Several important managerial changes have taken place. First, billionaire financier and investor Wilbur Ross sold his stake to Kalanithi Maran, promoter of Sun TV. Within a month, Sanjay Aggarwal, the CEO and an experienced hand in the industry, put in his papers. He was instrumental in turning around the fortunes of SpiceJet, and it will be tough to find a candidate that can fit his outsized shoes.

Last week, Ajay Singh, a promoter-director and Atul Sharma, a fellow director quit the board together – probably to pave the way for the Marans, who own 38% of the equity capital, to wrest total control.

Interestingly, while the Civil Aviation Ministry has approved the induction of Mr Maran and five of his relatives/associates to the SpiceJet board, there is still no news about when the open offer for an additional 20% will be made. Reminds me once again about the Golden Rule: those who have the gold, make the rules!

Now, a look at the one year bar chart pattern of SpiceJet:

SpiceJet_Sep0110

In Oct ‘09, the stock had made two tops just above 42 and started to correct. It first dropped to the rising 20 day EMA, bounced up and then fell again to find support near the 50 day EMA. The OBV indicator was showing strong ‘accumulation’, and I had advised investors to buy on dips.

The stock made a low of 32, bounced up a bit, fell back to test the support from the 50 day EMA, then rose quickly on good volumes to touch a high of 49 on Nov 17 ‘09. It formed a ‘reversal day’ pattern and corrected down to the rising 20 day EMA.

Another volume spurt in early Dec ‘09 saw the stock break through the resistance of 49  – which then became a long-term support level as the stock entered an 8 months long sideways consolidation in a rectangular trading band between 49 and 64.

Such a long consolidation usually ends with a sharp break out. That happened on Aug 13, ‘10, backed by strong volumes and the stock rose almost vertically to hit a high of 79 on Aug 23, ‘10 – a gain of more than 100% in less than a year.

Note that during the long consolidation, the stock price came close to touching the rising 200 day EMA once during May ‘10, but remained above the long-term moving average throughout the past year. A clear sign of a bull market.

The RSI and the slow stochastic both entered their overbought zones as the stock touched the new high of 79. Neither of these two indicators seem to spend much time in overbought zones of the stock, so a correction was not surprising.

The ROC is positive. So is the MACD, which is touching the signal line. The slow stochastic dropped from the overbought zone, but remains above the 50% level. The RSI is still in the overbought zone.

If the correction continues, expect support at 69 (20 day EMA) and 64 (50 day EMA and upper end of the consolidation zone). The stock seems to be getting ready to test its Jan ‘08 high of 105.

Bottomline? The stock chart pattern of SpiceJet is in a strong bull market. Keep a trailing stop-loss and ride the bull. But remember that experienced airline hands have left the organisation. The new owners have political clout, which is great for wheeling and dealing but not so great for success in a complex and competitive industry which requires constant capital infusion, and globally doesn’t make much money.

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