Are you worried about the recent volatility in the Stock Market? Are you confused what to buy, sell or hold? The newsletter selects quality mid-caps and small-caps for investors with a long-term perspective and provides timely buy/sell/hold suggestions. Send an email (to address in profile below) for subscription details today.

Wednesday, October 20, 2010

Stock Chart Pattern: Akzo Nobel India (ICI India) – An Update

More than a year back (in Sep ‘09), I had analysed the chart pattern of ICI India – now renamed Akzo Nobel India. The stock had just broken above the resistance of the 550 level, after consolidating in a bullish ascending triangle pattern. The resistance level then turned into a support level for the next couple of months.

Dutch multinational Akzo Nobel, a world leader in specialty chemicals and coatings, bought ICI UK’s paints business two years back and became the new owners of ICI India. They took their time in consolidating the Indian business by selling off the remaining non-core subsidiaries and businesses. Only the starch business still remains.

The end result? A pure paints company, debt free with a cash kitty of nearly Rs 1000 Crores, ready to expand, acquire and take on the big boys like Asian Paints, Kansai Nerolac and Berger Paints.

The market has become aware that this former diversified subsidiary of a UK company with assorted unrelated businesses is about to transform itself into a growth-oriented and focussed paints and coatings company that can benefit from India’s infrastructure growth story.

Let us have a look at the 13 months bar chart pattern of Akzo Nobel India (formerly ICI India) and find out how the stock has fared, and what lies ahead:


The stock consolidated in a sideways band between 550 and 600 before breaking out in mid-Dec ‘09, and moved up to touch a high of 680 on Jan 22 ‘10.

Nothing much happened during the next four months, as the stock declined slowly down to the support of the 200 day EMA. While the MACD, RSI and slow stochastic drifted down with the stock, the OBV remained flat. The positive divergence gave a hint that accumulation was going on. Note the volume spikes while the stock was oscillating in the narrow space between the falling 20 day EMA and the flat 200 day EMA.

The inevitable happened in Jun ‘10. The Akzo Nobel India stock rose sharply from a low of 570 to 750, and then started a rally that culminated at the all-time high of 970 on Sep 21 ‘10. A gain of 70% in 4 months. There may not be a better example of the benefits of holding a fundamentally strong stock for the long-term.

Note that the MACD, RSI and slow stochastic made lower tops as the stock moved higher from Jun ‘10 to Sep ‘10. The negative divergences has caused a month-long bout of profit booking. The stock hit a low of 845 on Oct 18 ‘10 retracing 31% of the 400 points rise, and has dropped below the 50 day EMA. The 20 day EMA is about to do likewise.

The technical indicators are suggesting that the stock is oversold. The MACD is below the signal line and falling in negative territory. The space between the two lines is widening. The RSI and slow stochastic have both entered oversold zones. The slow stochastic can remain in the oversold zone for a while, but the RSI rarely spends much time in oversold territory.

But the most interesting is the OBV. It has remained flat while the stock fell from 970 to 845. Smart money is accumulating the stock, and the next price spurt could reach 4 digit territory.

Bottomline? The stock chart pattern of Akzo Nobel India (formerly ICI India) is taking a break in the midst of a major up move. Existing holders can remain invested with a stop-loss at 750. A drop below 845 can be used to add/enter. With reserves exceeding 25 times the equity capital of Rs 37 Crores, a bonus issue will not be surprising.


scorpio said...

After a long time visited your blog and as always refreshing :)
Always learn something when I visit the blog. :)

Subhankar said...

Thanks for the kind words, Ashish.

kaku said...

hello sir - the stock has breached your stop loss target @750. Is it just market sentiment or some change in fundamentals? What could be a good target for fresh entry?

Subhankar said...

Technically, a 'breach' of a support or resistance occurs if the stock closes more than 3% beyond the level mentioned. Intra-day breaches may be an indication of things to come, but not considered a confirmed breach.

In this case, there was a single day's close at 748.60 before the stock bounced up again. So, technically, the support at 750 has not been broken yet.

There is no change in fundamentals as far as I am aware. One can enter with a strict stop-loss at 750, or await another likely test of support before deciding to buy.