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Saturday, November 22, 2014

Technical updates – Canara Bank and Dhanalakshmi Bank

Narendra Modi’s charisma and promise of ‘acche din’ struck a chord with young voters that led to a landslide victory for the BJP in the general elections. That was 6 months ago.

A country paralysed by scams and corruption can not change overnight. Modi’s victory has improved market sentiments. The stock market is touching new highs. But GDP growth is still sluggish.

For growth to accelerate, companies must produce more. That means investing in capacity expansion and starting new projects. Which will require funds. That is where banks come in. For GDP to grow, business of banks must also grow.

Smart investors prefer private banks – which are better managed and have lower NPAs. PSU banks have bigger branch networks, but many branches in less profitable locations. That doesn’t mean all private banks are better investments than PSU banks.

Canara Bank (PSU) and Dhanalakshmi Bank (Private) have similar-looking price charts, but vastly different fundamentals. A closer look at the charts below will show the difference. However, both stocks are trading well below their 2 years highs touched back in Jan ‘13.

Canara Bank

CanaraBank_Nov2114

The stock price of Canara Bank touched a 2 years closing high of 526 in Jan ‘13 before dropping back into bear territory – technically confirmed by the ‘death cross’ of the 50 day EMA below the 200 day EMA (marked by light blue circle) in Mar ‘13.

A small ‘double bottom’ reversal pattern at 194 during Aug-Sep ‘13 led to the start of an up trend that is still in force. The stock failed to rise above its 200 day EMA and dropped to touch multiple higher bottoms at 212-214 during Feb ‘14.

The subsequent rally on rising volumes took the stock above its 200 day EMA and after a pullback, soared to touch a high of 493 in Jun ‘14. The ‘golden cross’ of the 50 day EMA above the 200 day EMA (marked by light blue circle) in May ‘14 technically confirmed a return to a bull market.

Note that the stock price fell short of its Jan ‘13 top of 526, formed a ‘head and shoulders’ reversal pattern, and briefly dropped below its rising 200 day EMA before bouncing back into bull territory. Technical indicators are suggesting that the up trend may resume after some more correction/consolidation.

Dhanalakshmi Bank

Dhanalakshmi_Nov2114

The stock price of Dhanalakshmi Bank touched a 2 years closing high of 71 in Jan ‘13 before dropping back into bear territory – technically confirmed by the ‘death cross’ of the 50 day EMA below the 200 day EMA (marked by light blue circle) in Mar ‘13.

A ‘V’ shaped reversal at 25 during Aug-Sep ‘13 led to the start of an up trend that is still in force. The stock briefly rose above its 200 day EMA but formed a small ‘double top’ and dropped to a higher bottom at 28 in Feb ‘14.

The subsequent rally on rising volumes took the stock above its 200 day EMA and touched a high of 60 in Jun ‘14. The ‘golden cross’ of the 50 day EMA above the 200 day EMA (marked by light blue circle) in May ‘14 technically confirmed a return to a bull market.

Note that the stock price fell short of its Jan ‘13 top of 71, formed a ‘double top’ reversal pattern, and dropped below its 200 day EMA. The stock is struggling to remain in bull territory. Technical indicators are in bearish zones but showing some signs of recovery. The up trend may resume after some correction/consolidation.

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