Wednesday, September 21, 2011

Stock Chart Pattern - Hindustan Unilever (An Update)

In the previous update to the technical analysis of the chart pattern of Hindustan Unilever, way back in Jan ‘10, the stock had been in a correction after climbing to an intra-day peak of 306 in Jul ‘09. The stock fell down to an intra-day low of 218 in Mar ‘10, a 29% drop from the peak.

The 8 months of correction broke the three years long up-trend line; the ‘death cross’ of the 50 day EMA below the 200 day EMA in Feb ‘10 confirmed a bear market. There were growth and margin pressures on the company, which were reflected in the stock’s price.

A look at the 2 years closing chart pattern of Hindustan Unilever should convince investors of different experiences and propensities why this is a must-have stock among the several thousand being traded on the BSE and NSE.


There is an old saying: “You can’t keep a good man down.” That expression could just as well describe the HUL stock. Note that when the stock dropped to its new closing low of 220 in Mar ‘10, all four technical indicators reached higher bottoms (marked by blue arrows). The positive divergences signalled the end of the bear period.

The stock embarked on a fresh bull rally within an upward-sloping channel that is still intact. From Sep ‘10 through Jan ‘11, the stock reached three closing tops – each a little higher than the previous one. This time, the technical indicators all touched lower tops. The negative divergences led to a sharp drop below the 200 day EMA, followed by a triple-bottom reversal pattern from Feb to May ‘11.

Once again, positive divergences from all four technical indicators that touched higher bottoms, hinted at a resumption of the rally. The stock reached a new closing high of 343 in Jun ‘11 at the upper-end of the upward-sloping channel. Negative divergences in the technical indicators warned of a correction.

There are two points of interest here. The first is that the stock’s price movements provide long-term trading opportunities, as it swings up and down within the upward-sloping channel. The second, more important one, is that between Nov ‘10 and Sep ‘11 the stock has gone up to touch new highs, and is in a bull market - even as the Sensex and Nifty are in clear down trends.

All three EMAs are rising and the stock is trading above them – a sign of a bull market. The strategy should be to use dips towards the lower end of the upward-sloping channel to add. All four technical indicators – MACD, ROC, RSI and slow stochastic are correcting an overbought situation. The correction from the new closing high of 353 may continue a bit longer.

Bottomline? The stock chart pattern of Hindustan Unilever is in a bull market, making steady rather than spectacular progress. Growth and margins are back on the upswing. Valuations are not cheap, but the stock is worth its weight in gold. Regular dividends are an added attraction. Use dips to accumulate.

No comments: