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Thursday, December 13, 2012

Stock Chart Pattern - Tata Chemicals Ltd (An Update)

The following were the concluding comments in the previous technical update to the stock chart pattern of Tata Chemicals (posted on Aug 25 ‘11 – marked by grey vertical line on chart below): “If you are still holding, keep a strict stop loss at 330. Use the subsequent dip to accumulate.” Was it a crystal ball that enabled a look into the future? Hardly. Just an educated guess based on technical analysis.

After touching a peak of 442 in Oct ‘10, from where it fell to a low of 302 in Feb ‘11, the stock price was consolidating within a rectangular band between 345 and 390 for 5 months. Technical indicators were looking bearish, the 50 day EMA was about to cross below the 200 day EMA, and the stock price was struggling to cling on to the lower edge of the rectangular pattern.

The bearish indications taken together pointed to a down move – which was sharp and swift – that dropped the stock to an intra-day low of 288 in Oct ‘11 and provided a good opportunity to buy. Though the stock has not given much returns by spending most of the past year in a sideways move, of late there are clear signs of buyer interest.

Tata Chem_Dec1312

From the low of 288 in Oct ‘11, the stock price of Tata Chemicals rose above all three EMAs to touch a high of 360 on Dec 7 ‘11 – but started correcting along with the Sensex as it dropped below all three EMAs to touch a higher bottom of 303 on Dec 28 ‘11. Again, it rallied with the broader market as it rose above all three EMAs to touch a higher top of 374.50 on Feb 17 ‘12.

The subsequent correction lasted 4 months, and dropped the stock to a low of 299.50 on Jun 5 ‘12. For the next 6 months, the stock price consolidated sideways within a rectangular band between 300 and 330. The eventual break out earlier this month was accompanied by a significant spurt in volumes, which validated the break out technically.

As often happens after a consolidation followed by a strong break out, the stock price has pulled back towards the 330 level. For those who missed buying on the break out, such pullbacks provide good entry opportunities.

Technical indicators have corrected from overbought conditions, but haven’t turned bearish yet. MACD is falling towards its signal line in positive territory. ROC has fallen sharply below its 10 day MA, but is still positive. RSI has slipped down from its overbought zone. Slow stochastic has dropped to its 50% level.

Bottomline? The stock chart pattern of Tata Chemicals is emerging from a prolonged bear phase that has tested investor patience. Thanks to timely capacity expansions and acquisitions, the stock is poised to reclaim its temporarily lost glory. This is an excellent stock for the portfolios of long-term investors.


Unknown said...

Hi subhankar sir,

Thanks for your educative analysis always.. Its great that someone is guiding.Kindly do look at the charts of jain irrigation n everest kanto.. Do you think the base has been formed or they will slip further.

With Best Regards,


Subhankar said...

Appreciate your comments, Jugraj.

The charts of Jain Irrigation and Everest Kanto are deep inside bear markets with no turnaround in sight. Such stocks are best avoided.

Can't comment on fundamentals because I don't track these two stocks.

ganga... said...

Sir ,

now Tata 255 range. whats nxt ? now buy or wait again ? which is good ?

what you think sir ?


Subhankar said...

Market is falling - so is the stock. Wait for clear signs of bottom formation and trend reversal.