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Thursday, April 4, 2013

Stock Chart Pattern - State Bank of India (An update)

The previous update to the stock chart pattern of State Bank of India was posted back in Nov ‘11 (marked by grey vertical line in chart below). The stock price had touched an all-time high of 3515 a year earlier (on Nov 8 ‘10), and since then had been in a bear market along with the Sensex.

The stock touched a low of 1576 on Dec 20 ‘11 – a drop of 55% from its peak of 3515, which is almost twice the fall of the Sensex in percentage terms. The subsequent sharp rally took the stock above all three EMAs to touch a high of 2475 on Feb 21 ‘12.

Bullish hopes were belied as the stock entered a period of sideways consolidation – alternately moving above and below its 200 day EMA that frustrated long-term investors, but provided good trading opportunities. The 18 months daily bar chart pattern of State Bank of India shows that the stock is far from regaining its former glory.

SBI_Apr0413

The stock price twice received support from the 1820 level before bouncing up. On Sep 17 ‘12, the stock moved up with a ‘gap’ between 1975 and 2005. The ‘gap’ remains unfilled till date, which is a bullish sign. However, the stock has formed a bearish head-and-shoulders pattern since then – with the peak of the ‘head’ touching 2550 on Jan 10 ‘13.

The 2050 level, which has acted as a support/resistance level, is also the ‘neckline’ of the head-and-shoulders pattern. The downside target of the head-and-shoulders pattern is 1550. (Why? 2550 – 2050 = 500; 2050 – 500 = 1550.) If the downside target is met, not only will the ‘gap’ between 1975 and 2005 get filled but the Dec ‘11 low of 1576 will also get breached.

Note the negative divergences in all four technical indicators (marked by blue arrows), which failed to touch new highs along with the stock price. Also, by touching a high of 2550 and turning down, the stock price just reached the 50% retracement level of the entire bear market fall from 3515 to 1576. Technically, the stock remains in a bear market till it can move convincingly above the level of 2550.

Most PSU banks have substantial unreported NPAs – called ‘restructured assets’ – thanks to loans given to power and airlines sectors. Fund managers and investors can hardly ignore the largest PSU bank in the country. However, the stock chart pattern reflects a distinct wariness among investors. Notice the volume spikes on down days.

All four technical indicators are in bearish zones – though they have corrected from oversold conditions.

Bottomline? The stock chart pattern of State Bank of India is poised near an important support at 2050. The support may not hold. If it fails to find support from the 1820 level and drops lower, it can drag the Sensex down into a bear market. Extreme caution is advised.

2 comments:

Ajay said...

As per your post it broke all levels and reached 1820 few days back, it just made a dead cat bounce today along with other stocks from 1820 levels. Sensex at 20K+ and this stock is 1820 levels, when to buy this stock or is it going to go down further? All PSU banks are going cheap, look at corporation bank, 6%+ yield, LIC is holding 25% in this bank and the stock is down 20% in couple of months. You had mentioned in one of the post to avoid PSU banks due to understated NPA's, How to go about it? It seems except for FMCG and Pharma there is no business in Indian Market, only those are performing in reality and in market as well but all good things may have to come to an end!

Subhankar said...

SBI stock is heading down towards a strong support zone between 1000 and 1600. Wait for a bounce up from the support zone if you wish to enter. You may be better off looking at HDFC Bank or ICICI Bank instead.

Apart from FMCG and Pharma, you can also look at IT majors. They will benefit from the Rupee fall.