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Friday, July 11, 2014

Technical updates – Punj Lloyd and Suzlon

The two budget proposals during the week were met with widespread selling in the stock market. Huge expectations from the Modi-led NDA government had caused a sharp rise in stock prices – particularly of stocks from the infrastructure sector.

It turned out to be a case of ‘buy the rumour and sell the news’. The budget proposals had few populist measures and no big-bang reform proposals. Perhaps it was too much to expect from a government that has spent less than 2 months in power.

Interestingly, many stocks hit their peaks in June ‘14, well before the two budgets. The two stocks discussed below were darlings of small investors during the 2003-2007 bull market. Their tough times continue despite significant gains from recent lows.

Punj Lloyd

PunjLloyd_Jul1114

The stock of Punj Lloyd had closed at 63 back in Jan ‘13. But that was a bear market rally top. The stock soon dropped below all three EMAs. Another rally carried the stock to a lower top of 56 in May ‘13 – but the long-term support/resistance level of 57 stalled the rally.

The stock plummeted like a stone to drop to a low of 21 in end-Aug ‘13, where it formed a small double-bottom reversal pattern and started to recover. After climbing above its 20 day and 50 day EMAs, the stock entered a sideways consolidation with a slight upward bias that lasted 7 months.

All three EMAs converged in May ‘14 – and as often happens, a sharp price spurt on strong volumes followed. The stock again faced resistance from the 57 level, and has corrected down to its 50 day EMA. Technical indicators are looking bearish and oversold, which may lead to a bounce up.

The stock is technically in a bull market – but invest at your own peril. Fundamentals are atrocious.

Suzlon

Suzlon_Jul1114

The Suzlon stock has a love-hate relationship with me. I love to hate it. If you don’t know why, please read this post.

The stock spent a long period in bear territory and dropped to penny-stock status in Jun ‘13. It dropped to a low below 6 in Aug ‘13 before recovering to test its 200 day EMA in Oct ‘13.  The next 6 months were spent in a sideways consolidation in and out of penny-stock status.

A sharp rally in Apr ‘14 propelled the stock to a 2 years high of 36 in Jun ‘14 – a whopping 6-bagger gain in less than a year! All four technical indicators became overbought. The subsequent correction has dropped the stock to its 50 day EMA.

Technical indicators are looking oversold, and the stock price may bounce up from here. The company has huge losses and massive debt. Stay as far away as possible.

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