Amazon deals

Tuesday, February 1, 2011

12 Sensex stocks displaying the ‘death cross’

The main reason why the Sensex isn’t showing a ‘death cross’ yet, is that only 12 of the 30 Sensex stocks are showing the ‘death cross’. The balance 18 are technically still in a bull market. For the uninitiated, the ‘death cross’ is the 50 day EMA crossing below the 200 day EMA on a price chart, signalling the beginning of a bear market. (The 50 day EMA crossing above the 200 day EMA, signalling the beginning of a bull market, is called a ‘golden cross’.)

Chart patterns of the 12 Sensex stocks displaying the ‘death cross’ (marked by blue ovals) are discussed below:

BHEL

BHEL_Feb0111

BHEL is a PSU blue-chip that started correcting after hitting a peak in Oct ‘10. The correction in the Sensex from Nov ‘10 exacerbated the fall. The ‘death cross’ occurred in end-Nov ‘10, two days after the stock dropped sharply to an intra-day low of 2060. A strong pullback took the stock up to 2379, where it faced strong resistance from the combined 100 day and 200 day EMAs.

Though technically in a bear market, the stock is trying to build a base. A move above 2379 will create a bullish pattern of higher tops and higher bottoms. The RSI and slow stochastic are showing positive divergences, having reached higher tops as the stock made a lower top. Use the dip to accumulate.

DLF

DLF_Feb0111

DLF, the real-estate high flier, doesn’t really score very high on management ethics, accounting transparency or investor friendliness. The stock is in a long-term bear market. A brief rally took the stock to a 52 week high of 397 in early-Oct ‘10. That was an opportunity to sell. The ‘death cross’ in Dec ‘10 has restored the bear market. With the recent tightening of loans to real-estate players by banks and housing finance companies, you can forget about investing in this stock even as a contrarian play. It may be headed down to two-digits.

Hero Honda

HHonda_Feb0111

Hero Honda was one of the stars of the bull market till its peak of 2094 in Apr ‘10. A technically overbought condition started a corrective spell. The confirmed news of Honda, Japan pulling out of the joint venture was given a thumbs down by the market. The uncertainty about the future has led to heavy selling. The ‘death cross’ in end-Jan ‘11 is signalling a bear market for this blue-chip. Avoid.

Jaiprakash Associates

JaiprAss_Feb0111

Jaiprakash Associates has been in a down trend since touching a high of 180 in Oct ‘09. The ‘death cross’ occurred in May ‘10, confirming the bear market. The rally from Sep-Nov ‘10 was an exit opportunity. Launching huge projects and borrowing money by the truck-load seems to be the core competency of this company. The stock is headed towards low double-digits. Avoid.

Larsen & Toubro

LandT_Feb0111

It is a bit disappointing to see a blue-chip like Larsen & Toubro in this group of bearish Sensex stocks. It started correcting with the Sensex after touching a peak of 2212 on Nov 4 ‘10. The sharp fall in Jan ‘11 was partly due to the less-than-expected Q3 performance. The re-structuring into 9 separate companies has also caused some uncertainty in the minds of investors. The ‘death cross’ will occur tomorrow, but I would use this dip to accumulate the shares of this fundamentally strong and investor-friendly company.

Maruti Suzuki

Maruti_Feb0111

Maruti Suzuki’s chart pattern has two ‘death crosses’ – one in May ‘10 and the other in Jan ‘11. What does it indicate? Technical analysis is not a science, and no rule is sacrosanct. The ‘death cross’ usually indicates the start of a bear market. But not in this case. The stock has been consolidating sideways since reaching a top of 1740 in Sep ‘09 – causing the ‘death cross’ to occur twice without entering a bear market. Yesterday’s low of 1170 formed a possible double-bottom. The RSI and slow stochastic are indicating a likely upward bounce. Accumulate.

NTPC

NTPC_Feb0111

The NTPC stock chart pattern is also showing two ‘death crosses’ – the first in May ‘10 and the second in Nov ‘10. The stock has been drifting downwards since touching a peak of 242 on Dec 31 ‘09, and is in a bear market. The hype about the phenomenal growth and profit opportunities in the power sector has proved to be just that – hype. Avoid.

ONGC

ONGC_Feb0111

The ONGC chart also has two ‘death crosses’ – one in Apr ‘10 and the other in Jan ‘11. The first one didn’t cause too much damage to the bulls. The current one is unlikely to do much damage also – because the FPO has been scheduled for Mar ‘11, and the DIIs are likely to buy at dips till the FPO goes through. This is a great company but the government’s meddling has messed up its operations. This is a major reason why I avoid all PSU stocks. Accumulate.

Reliance Comm

RelComm_Feb0111

Where is the ‘death cross’ in the Reliance Communications chart? It happened more than two years back, and is not showing up in the one year chart pattern! The stock is in a long-term bear market and should ideally be removed from the Sensex 30 index. Only big-brother can bail this company out. Don’t go anywhere near this.

Reliance Infra

RelInfra_Feb0111

Reliance Infra chart also has two ‘death crosses’. The first one was caused by the sideways movement in Feb ‘10. The next one in Sep ‘10 signalled the bear market. Anil Ambani has proven to be a big bag of wind with a slow leak. If you are invested in this company, bail out now before it becomes too late.

Reliance Ind.

Reliance_Feb0111

Reliance chart has two ‘death crosses’ as well – one in Aug ‘10 and the other in Jan ‘11. The first one was due to the sideways consolidation that has generated negative returns in the past one year. But the second one looks more ominous. The fall in Jan ‘11 has been steep and on increasing volumes. If Reliance doesn’t recover soon, it will drag down the Sensex with it. The technical indicators are hinting at a further fall. Wait for the correction to play out before entering. 

Tata Power

TPower_Feb0111

The ‘death cross’ in the Tata Power chart hasn’t yet happened – even though it has been marked in Sep ‘10. The 50 day EMA spent only a few trading sessions below the 200 day EMA due to the sideways consolidation, followed by a 52 week high. The current corrective spell may push the stock into a bear market. Wait for the correction to play out before entering.

7 comments:

Jasi said...

Sir, a yet again profound and I would say very timely post. It is such posts that arm us small investors.
Just one question ... actually a tongue-in-cheek remark ;)
While you talk about ONGC, you talk about govt meddling and why you dont fancy PSU stocks. Why then have you suggest us to "accumulate" it? Why oh why? ;)
Well just in light vein. Feel free to ignore the question.

Much appreciate your posts :)

Subhankar said...

It proves that my recommendations are unbiased, Jasi. Doesn't it? ;-)

Ganpat said...

Extremely good and useful research.Thank you Sir.

I have two doubts.

Under what circumstances the death cross can be ignored (ie.the holder of the stock need not take any action)

When one sells his holdings based on the occurrence of the DC,when he should re enter.When the 50dema again crosses the 200dema in the up direction?

I have Torrent power stock in which I see a clear DC.I would be thankful if you can just have a glance and share your views

Thanks again

Subhankar said...

Appreciate your comments, Ganpat.

The 'death cross' is a sign of a bear market. But it is not the only sign. In my post of Jan 18 '11 ("Is this a Bear Market, or a Bull Market correction?"), I mentioned four definitions of a bear market. When 3 of the 4 (or all 4) definitions are met, it is time to get out. Torrent Power meets all four definitions.

The same four definitions apply for a bull market - but you have to replace the 'drop below' by 'rise above', 'top' by 'bottom', and 'bull' by 'bear'.

Rishi said...

Dear Subhankarji,
You have mentioned a Avoid for Hero Honda - is it purely due to the uncertainty wrt honda' pull-out or due to technical reasons?
Isnt Hero Honda a solid fundamental company that should be accumulated in times of uncertainty?
How about the second best company Bajaj Auto in this segment fair in terms of fundamentals and technicals?
Thanks
Rishi

Ganpat said...

Thanks a ton Sir for the nice clarification..Regds

Subhankar said...

@Rishi: Bit of both. The auto industry depends on regular new product launches. Without Honda's technology inputs, it has become a question mark whether Hero alone is capable of launching technologically advanced products.

Technically, the stock has been making a bearish pattern of lower tops and bottoms since Apr '10. The sentiments have turned negative for quite some time, even though the 'death cross' happened only recently.

I don't track Bajaj Auto now. It used to be a very well-managed and investor-friendly company. The new guard may carry on the tradition. Technically, the stock made a top in Nov '10 and is correcting with the Sensex. Looks a better bet than Hero Honda.

@Ganpat: You're most welcome.