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Sunday, May 22, 2011

Contrarian plays in the Capital Goods sector

The BSE Capital Goods index has been a major underperformer over the past year because of poor performances of investor favourites like Crompton Greaves, Praj Industries, Punj Lloyd, Thermax, Suzlon. Even stocks of stalwart companies like L&T and BHEL have disappointed.

In every sector, there are always a handful of stocks that buck the trend and provide money making opportunities. 15 out of the 19 stocks that comprise the BSE Capital Goods index are in bear markets. The 4 remaining stocks can be good contrarian plays. Given below are their one year bar chart patterns.

ABB

ABB_May2011

After trading below its 200 day EMA in Aug ‘10, the ABB stock made a bullish rounding bottom pattern and rose sharply to reach a 52 week high of 975 on Sep 29 ‘10. A ‘reversal day’ pattern (higher high, lower close) marked the end of the up move. A strong 39% correction ended with another ‘reversal day’ (lower low, higher close) on Feb 10 ‘11. A ‘V’ shaped recovery culminated with a top at 907 on May 11 ‘11 – correcting 82% of the fall and restoring the bull market in the stock.

The technical indicators are suggesting that the current consolidation may last a little longer. Any dip to the 50 day or 200 day EMAs may be a good entry point.

Havell’s India

Havells_May2011

The Havell’s India stock chart pattern may look similar to ABB’s, but there are a couple of notable differences. The stock hit a pre 1:1 bonus adjusted high of 446.50 on Oct 5 ‘10 after a 19 months long bull rally. The subsequent correction was exacerbated by the additional liquidity from the bonus issue. The stock dropped below its 200 day EMA for the first time in 20 months, and reached a low of 290 on Feb 11 ‘11 – a 35% correction from its peak. The sharp recovery prevented the ‘death cross’. The Apr 27 ‘11 top of 422.50 retraced almost 85% of the correction.

The stock is consolidating within a symmetrical triangle, and the technical indicators are looking weak. Can be accumulated slowly.

Lakshmi Machine Works

LMW_May2011

The strong bull rally of the LMW stock ended with a double-top reversal pattern. After touching an intra-day peak of 2920 on Nov 8 ‘11, the stock corrected almost 32% to a low of 2000 on Feb 25 ‘11. A bullish rounding bottom pattern seemed to restore the bull market in the stock. But a sharp correction has dropped the stock below its 200 day EMA again.

The technical indicators are looking oversold, which means the down move may be ending soon. Accumulate slowly.

Siemens

Siemens_May2011

The brief drop below its 200 day EMA in Jan ‘11 did not have much effect on the bull rally in Siemens. The stock is consolidating sideways, and may continue to do so for some more time. Can be added on dips.

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