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Thursday, November 25, 2010

Chart Patterns of Housing Finance Companies

This week’s focus for the stock markets has been the LIC Housing Finance scam that queered the pitch further for the slipping stock markets.

Warren Buffett has said that there is never just one cockroach in the kitchen. Government mandarins tried to soft-pedal the scam by calling it a mere bribery scandal involving a handful of officials. But there is obviously more to it than meets the eye.

Now SEBI has started an investigation into insider trading and a figure of Rs 1000 Crores is being mentioned as the amount funnelled into stock trading by 5 companies. Wait for more cockroaches to emerge.

The LIC Housing Finance stock, along with bank and realty stocks, have taken a beating. It may be a good idea to take a look at the one year bar chart patterns of some housing finance stocks to check if some are faring better than the others.

Can Fin Homes

CanFinHomes_Nov2510  

After meandering sideways for 7 months, the Can Fin Homes stock broke out sharply on good volumes in Jun ‘10, and touched a peak in Aug ‘10. Thereafter, the stock has been drifting down making bearish lower tops and bottoms. Today, it has dropped down to seek support at the 200 day EMA and is looking the weakest technically. If the support from the long-term moving average gives way, the stock can drop to 100.

Dewan Housing Finance

DewanHsgFin_Nov2510

The Dewan Housing stock was in a strong bull rally through the past 12 months till it hit a peak of 347 earlier this month. The sharp correction has trimmed nearly 40% of its gains since the low of Feb ‘10. A drop to the 200 day EMA (at 256) is a possibility.

GIC Housing Finance

GICHsgFin_Nov2510

The GIC Housing Finance stock has a similar chart pattern to Can Fin Homes. The difference being a recent bearish double top formation and the subsequent quick drop towards the 200 day EMA. A fall below the long-term moving average may get support at 105.

GRUH Finance

GruhFin_Nov2510

An HDFC subsidiary, the GRUH Finance stock has performed very well to touch a high of 451 in Sep ‘10. The subsequent fall has corrected 31% of the rise from the low of Feb ‘10. Note that the stock has bounced up today from just below the 100 day EMA. Could be a good area to start accumulating.

HDFC

HDFC_Nov2510

HDFC is the all-time favourite stock of the FIIs and one of the best-managed companies in India. After reaching a peak of 780 in Sep ‘10 (adjusted for a 5:1 stock split), the stock has been consolidating in a ‘pennant’ pattern. Can be accumulated at all dips.

Bottomline? All stocks of housing finance companies are undergoing corrections, but HDFC and GRUH Finance have proved more resilient. If you like this sector, these two should be your top picks.

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