Friday, December 2, 2016

Is this a good time to enter SBI stock? - a technical update

The previous technical update to the stock chart pattern of State Bank of India (posted on Apr 2013) contained a bearish view for the following two reasons:

(1) formation of a head-and-shoulders reversal pattern with a downward target of 155 (adjusted for 10:1 stock split in Nov 2014); (2) large unreported NPAs of most PSU banks that exerted downward pressure on the prices of their stocks.

SBI's stock price had corrected down to 145.30 in Aug '13 - overshooting the downside target of the head-and-shoulders pattern. It then rose to 200, only to correct down once again to 145.60 in Feb '14 - forming a 'double bottom' reversal pattern.

The subsequent rally took the stock to a high of 283.40 on May 26 '14, but a 'reversal day' pattern (higher high, lower close) triggered a 6 months long sideways consolidation.

The stock touched a high of 296.80 on Nov 19 '14 - the day before it started trading ex-split (10:1). Such a split is often followed by selling, but the stock continued to rally and rose to touch a high of 335.90 on Jan 28 '15 - short of the lifetime high of 351.50 (touched on Nov 8 '10).

Three of the daily technical indicators - MACD, ROC, RSI - showed negative divergences by touching lower tops even as the stock closed at a 2 years closing high price of 334.45. That was just the signal bears needed.

A 13 months long correction culminated with the formation of a 'falling wedge' pattern, with the stock testing its Feb '14 low on Feb 25 '16. All four technical indicators showed positive divergences by touching higher bottoms (marked by blue arrows).

That triggered an expected upward breakout from the 'falling wedge' and started a rally that is still going strong. 

Note that the first leg of the rally took the stock above its 20 day and 50 day EMAs, followed by a correction that touched a higher bottom on May 23 '16 - a classic technical signal that the bear market was over.

A move above all three EMAs into bull territory, followed by the 'golden cross' of the 50 day EMA above the 200 day EMA (marked by dotted rectangle) on Jul 20 '16 technically confirmed a return to a bull market.

The stock has corrected below its 20 day and 50 day EMAs. All four technical indicators are looking bearish, and three of them - ROC, RSI, Slow stochastic - are looking oversold.

Though some more correction can't be ruled out, the dip is providing an entry opportunity.

1 comment:

Subhankar said...

SBI sells 3.9% stake in life insurance arm for Rs 1,794 cr