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Saturday, September 13, 2014

Technical updates – Bharti Airtel and OnMobile Global

A bearish opinion about the telecom sector was posted almost 5 years ago, giving clear reasons why investors would benefit by switching out of telecom stocks. Though a few readers agreed with my opinion, there was a mini storm of protest in a couple of online investor groups.

A look at the 2 year charts of two telecom sector stocks – one a leader among mobile services providers and the other a leading value-added software player – will show that the bearish opinion wasn’t very far off-target.

With BJP gaining a surprise majority in the general elections, stock market sentiments have received a bullish boost. While that has helped the fortunes of the Bharti Airtel stock to a certain extent, helping it to break out above a prolonged rectangular consolidation, the stock of OnMobile Global continues to languish in bear territory.

Bharti Airtel

Bharti_Sep1214 

The stock price of Bharti Airtel had been consolidating sideways in a rectangular band between 280 and 359 for almost 2 years. Note that the 280 level acted as a support/resistance level. A ‘surprising coincidence’ about the 359 level is that Bharti was quoting at that level when my post appeared in Oct ‘09. Such surprising coincidences make technical analysis an interesting pursuit.

An upward break out from a rectangle has measuring implications. The height of the rectangular band is 79 points (= 359 – 280). That gives a minimum upward target of (359 + 79 =) 438. Remember that in a bull market, upward targets are often exceeded.

All four technical indicators are looking overbought, with three of them – ROC, RSI, Slow stochastic - showing negative divergences. The stock price may correct or consolidate before resuming its up move. Will any correction be an opportunity to enter? It is your call. Telecom is not my favourite sector.

OnMobile Global

OnMobile_Sep1214

The stock of OnMobile Global was trading at 234 five years back. It has been all downhill since then for a company that was an offshoot of Infosys. One of the co-founders got involved in financial shenanigans and had to leave. The other co-founder – a former Infosys member – took over the reigns for a while, but he is a tech guy and his heart was not in administration.

The company’s domestic business is not growing much. Overseas business is supposedly doing well but requires a lot of capital expenditure that keeps margins under pressure. The stock failed to cross above the long-term support/resistance level of 39, despite strong volume support, and has slipped down into bear territory.

One good news for the bulls is that the stock has formed a bullish pattern of higher tops and higher bottoms since closing below the 20 level in Jul ‘13. A fall below its May ‘14 low of 27 will negate the bullish pattern.

Technical indicators are showing some bullish signs, with MACD crossing above its signal line in negative zone, and ROC and Slow stochastic climbing into bullish zones. However, RSI has failed to move above its 50% level despite a few attempts. Enter only if the stock price convincingly moves above 39.

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