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Thursday, April 3, 2014

Technical updates – Thermax and Voltas

India’s GDP growth has been shrinking for the past several quarters due to a combination of poor governance, rampant corruption, faulty populist policies and burgeoning fiscal and current account deficits.

High inflation kept interest rates high, which in turn led to lower capital expenditure that stunted growth. Not surprisingly, infrastructure stocks had borne the brunt of the negative sentiment about the economy.

Some belated measures introduced by the Finance Minister have aided in curtailing deficit. FII inflows have helped the Rupee to appreciate in value. The stock market appears to have discounted the good news in advance – the charts of Thermax and Voltas are good examples.

Thermax

Thermax_Apr0314

The stock price of Thermax formed a small ‘double bottom’ reversal pattern back in Dec ‘11 and started an up trend that is still in force. Note the 14 months long consolidation within a ‘rectangle’ pattern. Rectangles tend to be continuation patterns. The eventual break out was upwards, but was followed by a strong pullback that found support from the rising 200 day EMA.

A sharp rally followed. All four technical indicators indicated overbought conditions. The stock nearly doubled in price from its Dec ‘11 low of 390, but formed a small ‘double top’ reversal pattern. After correcting down to its rising 50 day EMA, the stock bounced up in trade today.

Voltas

Voltas_Apr0314

The stock price of Voltas formed a small inverse head-and-shoulders reversal pattern back in Dec ‘11 and started to rally. It formed a large ‘double-top’ reversal pattern by touching the 130 level in Mar ‘12 and Sep ‘12. A year-long down trend followed and the stock touched a new low of 64 on Sep 3 ‘13.

A strong rally helped the stock touch a 2 yr high of 163 on Apr 2 ‘14 – a huge gain of 157% in 7 months. The stock is looking overbought. Three of the indicators – ROC, RSI, Slow stochastic – are showing negative divergences by touching lower tops. A correction is likely.

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