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Wednesday, May 4, 2011

Stock Chart Pattern - Jagran Prakashan (An Update)

The stock chart pattern of Jagran Prakashan, which was last analysed back in June ‘10, hasn’t been able to progress much. From Sep ‘09 onwards, the stock has been trading within a rectangular band between 105 and 140 – frustrating long-term investors but providing reasonable trading opportunities.

Why am I writing about a company that has obviously failed to attract much investor attention? Because that is precisely where an opportunity may lie. A boring company name, a boring business - printing and publishing a newspaper which has the largest circulation in India, and earns sacks full of cash from its operations. With net profit margin above 15%, low debt/equity ratio, and regular dividend payments, it is just the kind of company that Peter Lynch recommends small investors should buy.

Why isn’t the stock price going anywhere? That’s a good question. Some times a company with good fundamentals gets overlooked by the market for long periods. But eventually, the market wakes up to the company’s potential, and the patience of long-term investors get rewarded. Till that happens, investors can take a look at the one-year bar chart pattern of Jagran Prakashan to time their entry and exit:

JagranPrakasan_May0411

It is interesting to note how the long-term support-resistance levels of 105, 120 and 140 came into play during the past year. Back in May ‘10, the stock had bounced off its support at 105, quickly rose to 129 in Jun ‘10, dropped down below 120 to seek support from its 50 day EMA, touched the 140 level intra-day in Jul ‘10 only to drop down to the 120 level.

Another intra-day top in Aug ‘10 was at 144, but the price dipped to the 200 day EMA, only to bounce up all the way to an intra-day high of 142 in Sep ‘10. Another correction down to the 50 day EMA, followed by a rally to an intra-day high of 147 and a close at 141.50 on Oct 8 ‘10. On the next trading day (Oct 11 ‘10), the stock price closed at 140.35. These were the only two closes above 140 during the past year.

Penetration of any support or resistance level should follow the 3% ‘whipsaw’ leeway. In other words, the stock needed to close above 144 for a few days. That never happened, though on 7 occasions the stock rose to intra-day highs above 144. Technically, the support level of 140 hasn’t been broken.

The Oct ‘10 top was higher than the Sep ‘10 top, but the MACD, RSI and slow stochastic reached lower tops. The negative divergences gave adequate warning that the bull rally was coming to an end. The correction from the Dec ‘10 top of 148 took the stock price below all three EMAs, to the support level of 105 in Feb ‘11. The subsequent rally rose above the 200 day EMA for several days and touched a high of 131.70 on Apr 19 ‘11 – an exact 61.8% Fibonacci retracement of the correction. But the price has slipped below the 200 day EMA to the support level of 120.

The technical indicators are looking bearish. The MACD is below its signal line, and falling towards its ‘0’ line. The ROC has dropped into negative territory, below its 10 day MA. The slow stochastic is about to enter its oversold zone. Only the RSI is giving a contra-indication by moving above the 50% level. The price may not drop too much.

Bottomline? The stock chart pattern of Jagran Prakashan is trading between 105 and 140 for almost 21 months. Prices can break out of such a rectangular pattern in either direction. Any dip below the 120 level can be used for entry, but with a strict stop-loss at 102. If the stock price breaches the 140 level on strong volumes, it can test its previous bull market high of 170.

2 comments:

jawaharlal bansal said...

how do you compare it with deccan chronical, fundamentally and technically.

Subhankar said...

Good question, Dr B, because it exemplifies that a stock needs to be selected both on its fundamentals and technicals.

Purely on fundamentals, Deccan Chronicle is the better stock - much higher profit on lower sales, trading at 1/3rd the P/E ratio of Jagran. Technically, Deccan is weaker, though both are in bear markets.