Friday, July 10, 2015

Technical updates – Cairn India and Castrol

After crossing the $105 per barrel mark back in Jun ‘14, WTI Crude oil price fell off a cliff. It touched a low near $40 in Mar ‘15, but bounced up above $60 in May ‘15 – where it consolidated for the next 2 months. Oil’s price has started sliding again.

Lower oil price is good for India’s current account deficit. It is also good for oil marketing companies, and value-added producers like Castrol India. But it is not so good for oil drillers like ONGC and Cairn India.

A look at the 2 years closing charts of Cairn India and Castrol (below) clearly shows which company is benefitting and which one is getting affected by lower oil prices. Cairn India is further hampered by an impending amalgamation with Vedanta.

Cairn India


Cairn India’s stock price touched a 2 years closing high of 382.75 on Jun 10 ‘14 – coinciding with the high touched by WTI Crude oil. It has been in a down trend ever since – failing to match the brief recovery in oil’s price during Mar-Apr ‘15.

In Aug ‘14, the 50 day EMA crossed below the 200 day EMA – the ‘death cross’ (marked by light blue oval) technically confirming a bear market. Since then, all three EMAs have been moving down and Cairn’s stock price is trading below them.

The stock price touched a 2 years low of 165 on Jul 9 ‘15, but three of the four technical indicators – MACD, RSI, Slow stochastic – touched higher lows (marked by blue arrows). The positive divergences can lead to an upward bounce. Use it to exit - in case you are holding the stock.



The stock price of Castrol India consolidated sideways with a downward bias from Jul ‘13 to May ‘14 before spiking up with good volumes in Jun ‘14 – about the time WTI Crude oil price started correcting.

The stock closed at a 2 years high price of 532.90 on Dec 5 ‘14, but has been in a down trend (marked by blue down trend line) since then. After slipping below all three EMAs into bear territory, the stock appears to have found a bottom at 427.

The three EMAs are in close proximity of each other – a condition often followed by a sharp price move. Since the stock is trading above its three EMAs in a bull market, the price move is likely to be upwards.

If the stock price breaks out above the down trend line with good volumes, it will be a buying opportunity. If volume is insufficient during the upward break out, expect the stock price to pullback towards the down trend line – which will be another buying opportunity. Keep a stop-loss at 414.

(Note: Castrol’s chart is an example of the benefits of a ‘buy and hold’ strategy for quality stocks. The positive price action happened during 6 months – from Jun to Nov ‘14. The balance 18 months during the 2 years period, the stock price consolidated with a downward bias.)

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