Stock Chart Pattern - Balrampur Chini (An Update)

Sugar stocks are not really my cup of tea - though I do add a spoonful of sugar to my evening cuppa. 

The sugar business is cyclical and weather dependent. To make matters worse, policies and prices are subject to frequent interference by the government.

That makes the business unpredictable, and I stay far away from it. But a young, risk-taking trader interested in making quick gains may find sugar stocks attractive.

The 2 years closing chart pattern of Balarampur Chini clearly reflects the cyclical nature of the sugar business. How cyclical? A look at the net profit figures of the past 5 years should suffice.

For year ending Mar '11 and Mar '13, net profit crossed Rs 160 Crores. For year ending Mar '12 and Mar '14, net profit was Rs 6.6 Crores and Rs 3.6 Crores respectively. For year ending Mar '15, there was a net loss of Rs 58 Crores.

Debt/Equity ratio is 1.43. High interest expenses continue to affect the bottom line. In other words, fundamentals do not warrant long-term investment.

But have a look at the returns that a trader could have made. From a low of 36.80 touched on Jan 31 '14 to a high of 85.15 touched on Jun 23 '14, the stock gave 130% return in less than 6 months.

A 15 months long bear phase followed (marked by the blue down trend line). The stock dropped to a closing low of 38.90 on Jun 16 '15 - giving up almost all its gain in one year, but providing good trading opportunities.

After forming a 'double bottom' reversal pattern (marked B1 and B2), the stock price embarked on another bull rally, touching a 2 years high of 87.85 on Jan 13 '16 - giving 120% return in less than 5 months from the low of 39.60 (B2) touched on Aug 31 '15.

The stock is trading well above its rising 200 day EMA in a bull market, but such a sharp rally is unsustainable. 

All four daily technical indicators are looking overbought and a couple of them are showing negative divergences by failing to touch new highs with the stock price.

Get ready for another stomach-churning roller coaster ride. Like I said, not really my cup of tea.

Are sugar stocks turning bitter already?

Blog readers may be aware that my opinion of the sugar sector (expressed here and here) is not good. The reason is simple – too much government control over policy and price. So why am I writing about the sector? To sound a warning note.

For the past couple of months, there have been some indication that sugar stocks have bottomed out after a prolonged bear period. That has attracted many small investors who are forever looking at ‘cheap’ stocks on which they can turn a quick profit.

The recovery in sugar stocks was mainly on the hope of some price rationalisation by the government to help out the struggling(?) sugar companies. The government did announce revised prices of procuring sugar cane from farmers, but it was much higher than what the sugar companies are willing to pay and much lower than what farmers are demanding.

The farmers are unhappy. So are the sugar producers. If you entered at lower levels, take your profits and be happy. Things may get worse.

Bajaj Hindusthan

The stock price recently spurted higher on strong volumes, but failed to reach its falling 200 day EMA. All four technical indicators indicated negative divergences by failing to move up higher. Bears are likely to resume their dominance.

Balrampur Chini

If you are interested in buying a sugar stock, Balrampur Chini may be your best bet. The stock is in an up trend since Aug ‘13, forming a bullish pattern of higher tops and higher bottoms. The stock price is pulling back towards its 200 day EMA, after crossing above it on strong volumes. Buy only if the stock bounces up from its 200 day EMA.

Dalmia Sugar

After a prolonged consolidation in a bullish ‘rounding bottom’ pattern, Dalmia Sugar traded above its 200 day EMA during Oct ‘13. It has since formed a bearish ‘rounding top’ pattern to drop below its long-term moving average. Technical indicators are recovering from oversold conditions. The stock may try to resume its up move.

Dhampur Sugar

The stock price of Dhampur Sugar formed a ‘double-bottom’ reversal pattern and jumped up to test its falling 200 day EMA on strong volumes; but dropped down after facing strong resistance. ROC and RSI are looking overbought. Bears may use the opportunity to sell.

Dwarikesh Sugar

Dwarikesh Sugar stock made a couple of efforts to cross above its 200 day EMA – but failed to close above its long-term moving average. Daily technical indicators are showing negative divergences by touching lower tops. However, the stock is in an up trend, and can be bought with a strict stop-loss at its 50 day EMA.

EID Parry

EID Parry stock is in an up trend, but struggling to cross its 200 day EMA. It is facing strong resistance at 155. Daily technical indicators are showing negative divergences by touching lower tops after reaching their Oct ‘13 highs. Buy only on a convincing move above 155.

Rajshree Sugar

The stock price of Rajshree Sugar is trying to correct oversold conditions, but is trading below all three EMAs. Avoid.

Shree Renuka Sugar

Once a darling of the stock market, Renuka Sugar is struggling to get out of a bear stranglehold. It is consolidating within a symmetrical triangle pattern, from which the likely break out is upwards. Since triangles are unreliable, wait for the break out.

Simbhaoli Sugar

Simbhaoli Sugar is sliding deeper into a bear market, with no sign of a bottom formation. Avoid.

Ugar Sugar

The stock price of Ugar Sugar has attempted to cross above its falling 200 day EMA on five occasions in the past 12 months. Bears have stifled bullish hopes each time. The stock is trying to find a bottom at 10. Avoid.

(Note: I don’t track the sugar sector, and have very little idea of the fundamental strengths or weaknesses of any of the stocks mentioned above.)

Stock Chart Pattern - Balrampur Chini (An Update)

The previous technical update of the stock chart pattern of Balrampur Chini was posted back in Jan 2010, with the following concluding remarks: “Existing holders may stay invested with a strict stop-loss at 115, with the hope that a white knight will appear on the scene soon. The risk-averse can book profits. Fresh entry is not recommended.”

The owners had been trying to sell the company, but the high asking price had deterred potential buyers like Bajaj Hindustan and Shree Renuka Sugar. No white knight appeared. After touching a high of 167 in Oct ‘09, the stock dropped into a prolonged bear phase. It received brief support at 115, but soon dropped to 70, where it received stronger support – in May ‘10 and then again in Dec ‘10 (marked by blue up arrows on left of chart below).

Once the support at 70 got breached in Feb ‘11, the stock made a couple of valiant efforts to climb back and stay above 70 but failed and dropped all the way down to a low of 33 in Dec ‘11 – just above its Oct ‘08 low of 30. The bear phase appears to have ended finally.

The daily bar chart pattern of Balrampur Chini shows an uptrend from the Dec ‘11 low of 33 (marked by blue uptrend line) that has already provided more than 100% gains in 8 months, but is facing strong resistance from the support/resistance level of 70 (marked by blue down arrow on right of chart above). This is another example of how an earlier support level can turn into a future resistance level.

Will the stock price be able to break out above the 70 level soon? Technical indicators seem to indicate otherwise. MACD is barely positive, and is below its signal line. ROC is above its 10 day MA but has slipped back into negative territory. RSI faced resistance from its 50% level, and is moving down. Slow stochastic has moved above its 50% level. Bulls have some more work to do before the stock price can move higher.

The company hasn’t been doing well. Top line shrank by 22% in FY ‘12 while bottom line shrank by 96% and was barely positive. Debt/Equity ratio is 1.42. Interest expenses continue to affect the bottom line. Q1 results showed top line growth of 21%, but hardly any improvement in the bottom line, which remained negative.

What should small investors do? If you are holding on from higher levels in the hope of getting back your ‘buy’ price, it may be a good idea to get out now. If you are one of those lucky few who managed to get in at lower levels, book part profits and hold the balance with a trailing stop-loss at the level of the uptrend line (now at about 60). If you are thinking of making a fresh entry, don’t. Much better stocks are available in the market.

Bottomline? The stock chart pattern of Balrampur Chini seems to have shrugged off the bears and is trying to enter a new bull market. That doesn’t make it a good investment candidate. There is too much political interference in the sugar sector as a whole. Stocks from the sector are best avoided.

Is it a good time to look at the sugar sector stocks?

Blog readers may be aware of my aversion for sugar sector stocks. However, sugar sector stocks are showing signs of waking up after a prolonged hibernation. It may be a good time to take a look at them, provided you feel that they will make a sweet addition to your portfolio.

Remember that sugar is a commodity sector in which companies neither have much pricing power, nor can they resort to import/export to tide over shortages/gluts because of government interference at every step. That makes it a sector that small investors should avoid.

If you are nimble-footed, have high risk tolerance and know how to get in and out quickly, sugar stocks can give great returns in a short span of time. But you can get badly stuck just as easily. Caveat emptor!

Given below are the charts and brief technical analysis of 10 stocks from the sugar sector – most of them still struggling in bear markets.

Bajaj Hindusthan

Bajaj Hindusthan stock has moved above its 20 day and 50 day EMAs on good volume support, but is still trading below its falling 200 day EMA. The stock touched a higher bottom in Jun ‘12, which is a positive for bulls. Already, technical indictors are showing overbought conditions. A correction may be around the corner.

Balarampur Chini

Balarampur Chini stock is beginning to look bullish, after forming a saucer-like consolidation pattern and rising above its 200 day EMA once more. A move above its Apr ‘12 top of 60 will form a bullish pattern of higher bottoms and higher tops. Technical indicators are looking overbought – a pullback to the 200 day EMA is likely.

DCM Shriram Industries

The stock of DCM Shriram Industries is looking similar to the Bajaj Hindusthan stock – but with an important difference. The bottom touched in Jun ‘12 was lower than the one touched in Dec ‘11. The recent price spurt has not seen much increase in volumes. THe stock is likely to drop lower.

Dhampur Sugar

The stock of Dhampur Sugar has doubled in price from its Dec ‘11 low and is the only one to have returned to a bull market. All three EMAs converged in Jun ‘12, and a sharp up move followed on strong volumes. The stock is trading above all three EMAs and has formed a bullish pattern of higher bottoms and higher tops. Technical indicators are looking overbought. A pullback is likely. Use it to enter.

Dwarikesh Sugar

Dwarikesh Sugar stock is showing signs of emerging out of its bear market by forming a saucer-like pattern and crossing above its 200 day EMA on a volume spurt. A pullback to the long-term average was followed by a bounce up. A move above its Jan ‘12 top of 48 will form a bullish pattern of higher bottoms and higher tops.

EID Parry

EID Parry stock has risen sharply to test its falling 200 day EMA. It is in a down trend and technically in a bear market, so a correction can be expected after the sharp rise. Technical indicators are looking overbought.

Rajshree Sugar

The stock of Rajshree Sugar has risen very sharply above its 200 day EMA on a volume spurt. It has formed a bullish pattern of higher bottoms and higher tops. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will technically confirm a bull market. Technical indicators are overbought – a pullback towards the 200 day EMA is likely.

Shree Renuka Sugar

Renuka Sugar stock was a hot favourite in the previous bull market, but the promoter’s ambitions were not matched by business savvy or execution. Note the high volume ‘panic bottom’ formed in Nov ‘11, followed by a drop to a lower bottom in Dec ‘11. An example of the old stock market adage: ‘Panic bottoms’ seldom hold. The stock touched a higher bottom in Jun ‘12, but remains in a bear market.

Simbhaoli Sugar

The stock of Simbhaoli Sugar is trying to get out of the clutches of bears. Positive divergences in all four technical indicators - which touched higher bottoms while the stock dropped lower – preceded the current rally. Technical indicators are looking overbought. Expect the bears to attack again.

Ugar Sugar

The stock of Ugar Sugar has formed a bullish rounding bottom pattern to move above its 200 day EMA. A rise above its Feb ‘12 top of 16 will form a bullish pattern of higher bottoms and higher tops. The stock trades in low volumes – so getting in and out may become an issue.

[Note: I don’t track the sugar sector, and have very little idea about the fundamental strength (or lack of it) of these stocks. Please do your own due diligence.

If you are interested in fundamentally strong mid-cap and small-cap companies, you can subscribe to my Monthly Investment Newsletter. Paid subscriptions will remain open till Jul 21 ‘12.]

Chart Patterns of 10 Sugar Sector Stocks

The Sugar sector is not one of my favourite sectors to invest in – and that is putting it mildly. For some strange reason, small investors seem particularly attracted to it. Probably because they enjoy consuming the product every day. Like all commodity sectors, the sugar sector has its ups and downs. Mostly downs – as you can see from the charts below. As in all sectors, there are always one or two stocks that buck the trend. Too many imponderables and too much government meddling makes this a sector small investors should avoid.

Bajaj Hindusthan

Bajaj Hindusthan is one of the bigger, and supposedly better, sugar companies. Not the stock, which is struggling to emerge out of a bear market. Note that the stock had a sharp rise above all four EMAs in Jun ‘10, only to meet heavy selling. In Nov ‘10, the stock reached a higher top but the four technical indicators made lower tops. A sharp correction followed.

The opposite is happening now. The stock touched a lower top but the technical indicators have reached higher tops. Any up move will provide an opportunity to sell. Why? The stock made a higher bottom in Nov ‘10 than the one in May ‘10. But the technical indicators have made flat or lower bottoms – signalling weakness. Avoid.

Balarampur Chini

Balarampur Chini was one of the better sugar stocks to invest in once upon a time. No longer. The management is keen to get rid of the company, but no one is agreeable to meet the price demanded. The stock is in a long-term bear market. Avoid.

DCM Shriram Industries

The less said about DCM Shriram Industries the better. It is one of the most shareholder-unfriendly companies you can find. The stock is in a long-term bear market. Avoid.

Dhampur Sugar

Dhampur Sugar is struggling to emerge from a bear market. Periodic forays above the sliding 200 day EMA have been met with selling. Hold, with a stop-loss at 63.

Dwarikesh Sugar

Dwarikesh Sugar is faring slightly better than most sugar sector stocks. Though the stock is trading below the 200 day EMA, the long-term moving average is actually rising, which holds out some hope for the bulls. Hold, with a stop-loss at 75.

EID Parry

The EID Parry stock has been the star performer in the sugar sector. After touching the split-adjusted high of 290 earlier this month, the stock has corrected all the way down to its 200 day EMA. If the support holds, this could be a good buying opportunity. The technical indicators are in oversold territory, and an upward bounce is possible.

However, there is a bearish sign. Since Oct ‘10, the stock has made a broadening formation of higher tops and lower bottoms and can break downwards. Any buying should be with a strict 8% stop-loss.

Rajshree Sugar

Rajshree Sugar made a valiant effort to extricate itself from the bear grip. Since its Nov ‘10 top, it has been drifting down, making a bearish pattern of lower tops and lower bottoms. The 200 day EMA has started falling and the stock is trading below the long-term moving average. Sell.

Shree Renuka Sugar

Shree Renuka Sugars has become one of the larger and better managed companies in the sector with a global scale of operations. The stock is consolidating within a triangle and is trading just above its rising 200 day EMA. Accumulate, with a stop-loss at 74.

Simbhaoli Sugar

Simbhaoli Sugar is another stock struggling to get out of a bear market. The high volumes on up days indicate buying interest, but its efforts to remain above the 200 day EMA have not been successful. Hold, with a stop-loss at 40.

Ugar Sugar

The chart pattern of Ugar Sugar is a bit of a surprise. It has made a bullish pattern of higher tops and higher bottoms since the double-bottom at 13 back in May ‘10. The up-trend line joining the May ‘10 and Aug ‘10 lows is holding. The stock seems to have found support at its 200 day EMA. Accumulate, with a stop-loss at 16.

Note: I don’t track the sugar sector, and have very little idea about the fundamental strength (or lack of it) of the stocks. Please do your own due diligence.

Stock Chart Pattern - Balrampur Chini (An Update)

During my previous look at the stock chart pattern of Balrampur Chini, the stock had jumped up from the Mar '09 low of 42 and had nearly doubled in value by early May '09. I had expected the stock to face some profit booking after the rapid rise.

The stock consolidated in a triangle pattern instead of correcting, and after the election results embarked on a steady northward journey with occasional dips. The bull rally finally terminated with a key reversal day on Oct 30 '09, as the stock hit a higher high of 167 and a lower close of 149.

The spectacular 450% rise from the low of 30 made in Dec '08 still fell short of the high of 205 made on Apr '06. Let us take a look at the 9 months bar chart pattern of Balrampur Chini to see what transpired next:-

 

The reversal day pattern stopped the bull rally on its tracks and the stock has been drifting sideways with a downward bias since then. The 20 day EMA is resting on the 50 day EMA and the stock has moved below both the short and medium term moving averages.

The stock had recovered well in Dec '09 when the 20 day EMA had moved down to touch the 50 day EMA, but made a lower top. If it moves below 120, a bearish pattern of lower tops and lower bottoms will get formed.

There is a possibility that the 200 day EMA will provide support to the stock. Even if it does, and the stock manages to move up again, a bearish descending triangle pattern will start forming.

The OBV seems to be tracking the stock's movements, as it is supposed to do. But the MACD has moved into the negative zone and has gone below the signal line. The RSI is below the 50% level and rapidly moving towards the oversold zone. Looks like the wind has gone out of the stock's sails.

What has caused the bearishness? Technical analysis alone can't explain it. This is another instance of why both technical and fundamental analysis need to be considered for buy-sell decisions.

The Saraogi family of Calcutta that owns 36.5% of the equity and runs the show at Balrampur Chini seem to have had enough and have been trying to sell the company. In Nov '09, Bajaj Hindustan balked at the Rs 180 per share (of face value Re 1) price. In Dec '09, an attempt by Shree Renuka Sugar to take over the company came to nought.

The other reason for lack of investor interest could be the likely bulk import of sugar by the Government to ease the shortage situation. That would help curtail the runaway sugar prices and dent the profits of sugar manufacturers.

Bottomline? The stock chart pattern of Balrampur Chini shows a distinct dampening of bullish fervour. Existing holders may stay invested with a strict stop-loss at 115, with the hope that a white knight will appear on the scene soon. The risk-averse can book profits. Fresh entry is not recommended.

Stock chart pattern discussions - hits and misses

In my individual stock chart pattern discussions on Wednesdays, 10 stocks have been covered so far. It may be worthwhile to do a reality check to find out what I had observed and inferred and how the chart patterns actually shaped up.

1.  ICI India - ICI had pierced and closed above its 200 day EMA before dropping below, and was consolidating between the 50 day and 200 day EMAs around the Rs 416 level. I had suggested: Good stock to accumulate in small quantities for conservative, long term investors.

The stock has slowly but steadily moved up well above its 200 day EMA and added about 15%. Nothing great, but can be counted as a 'hit'.

2.  Suzlon Energy - The stock was looking oversold. There was a possibility of a bounce up, but it could also go lower. My advice: Investors should not go anywhere near this stock. Adventurous traders may want to make a punt with very tight stop losses.

After going marginally lower, the stock moved up rapidly with the global rally and jumped up by almost 150%! It is still well below its 200 day EMA in spite of the sharp rise. A 'miss'.

3.  State Bank - SBI was looking like a value buy as it was trading at its book value. I observed the strong support at 900, but did not expect an up move to go beyond 1100.

SBI moved up 40% with the global rally before facing resistance at a previous top of 1400. Another 'miss'.

4.  Unitech - The stock was being accumulated near its 52 week bottom and I expected a move upwards. But advised: Unless the strong resistance between 50-60 levels is overcome, there is no point in entering Unitech.

The stock did move up to the resistance zone of 50-60, but despite two attempts, was unable to cross it. A 'hit'.

5.  Hero Honda - This was one of the few stocks in a bull phase but at 1100 level was looking overbought and due for a correction. My suggestion: New investors may buy on dips. Existing investors should hang on tight and enjoy the ride.

After correcting to Rs 1000, the stock has steadily moved up to Rs 1200 and continues in its bull phase with all three averages moving up.

6.  Reliance Capital - I had expected the stock to face some resistance at 490-500 before moving up to 625 level, and had advised short and long term investors to get in at the next dip.

Reliance Capital sailed upwards to 580, reacted to 490 and then moved up to 625, where it faced resistance. I will count that as a 'hit', though the short term gain was only about 30%.

7.  Infosys - Despite a sell-off due to disappointing results that dropped the stock below its 200 day EMA, I had observed a 'rounding bottom' bullish pattern and advised: Wait for the selling pressure to subside before entering the stock on the dip. Be prepared for a longish wait for profits.

The stock smoothly moved up from Rs 1300 to Rs 1600, well above its 200 day EMA. Another 'hit'.

8.  DLF -  A 'rounding bottom' bullish pattern was observed but the failure to cross the resistance level of Rs 300 led me to suggest: If you haven't got rid of your DLF holding yet, you may get one more chance to do so. There is a possibility that this rally is taking a pause before trying to move higher again.

The stock moved down to Rs 220 before moving up to Rs 269 to provide one more chance for investors to get out. A 'hit'.

9.  Bharti Airtel - The upward rally looked too steep. The lower volumes remain a concern. The 20 day EMA did move up above the 200 day EMA as expected. My advice: An existing holder can keep riding the rally or book partial profits.

The stock has continued its upward move with a slight dip for 2 days. A 'hit'.

10. Balrampur Chini - The 50 day EMA did move above the 200 day EMA but instead of a correction, the stock is undergoing a triangular consolidation before the next up move. My suggestion: I would wait till the election results come out before entering.

It has been only five trading sessions since my discussion - too early to draw conclusions. A 'neutral'.

Without trying to be immodest, not a bad performance at all. Comments are welcome.

(Note: Please right-click on the charts and open them in a new tab or window for a better view.)

Why you need to learn about the Stochastic Oscillator

I have been planning to write about the Stochastic oscillator for quite some time. Reader Nikesh deserves special thanks for reminding me about it every once in a while.

In an article last July, identifying stock market trends using exponential moving averages (EMAs) and their crossovers was explained. A problem that one often faces with EMAs is that before they can confirm a change of trend, price levels often rise (or fall) by a significant amount.

I discovered that the Stochastic oscillator worked very well with EMAs to give early buy/sell indications and was very useful for timing entry into (or exit from) individual stocks. There are other indicators that can be used as well. But the stochastic oscillator provides clear and simple visual guidance.

Let us take a look at the 6 months bar chart pattern of Balrampur Chini, a sugar stock which I discussed last Wednesday, to find out the utility of the Stochastic oscillator:-

 

(Please right-click on the image; open it in a new tab or window for a better view.)

The Stochastic oscillator compares the closing price level of a stock (or index) with its price range over a given time period - say 10 days. It comprises two lines - the main '%K' line (in blue) and the '%D' line (in red); the '%D' line is a moving average of the '%K' and acts as a 'signal' line. When the '%K' moves above the '%D', it is considered bullish; when it moves below, it is bearish.

Both the lines 'oscillate' (i.e. alternatively go up and down) between values of 0% and 100%. The zone between 0-20% is considered 'oversold'; the zone between 80-100% is overbought.

(The actual calculations of '%K' and '%D' are slightly complicated, and I don't want to confuse any maths-shy readers unnecessarily. One can use the oscillator without understanding the underlying maths - much like driving a car without any idea of the function of the carburettor. Those who are maths-happy, and love to know the gory details, can email me.)

In Nov '08, Balrampur's stock price was well below the 20 day EMA, which in turn was below the 50 day EMA. The 50 day EMA was significantly below the 200 day EMA and all three EMAs were moving down. The bear grip on the stock was strong.

Look what happened in early Dec '08. The stock had a 'reversal day' (i.e. a lower low at Rs 30 and a higher close) and spurted up on small volumes. The '%K' (blue) line first moved above the '%D' (red) line, and then both lines moved up above the 'oversold' zone. That was a 'buy' signal, much before the stock moved above its 20 day EMA to confirm a 'buy'.

When the stock moved above its 50 day EMA in end-Dec '08, the stochastic oscillator was already in the 'overbought' zone. Before the big market correction came due to the Satyam scam news in Jan '09 (that caused all stocks, including Balrampur, to fall) the stochastic oscillator made an early downward break from the 'overbought' zone.

In Feb '09, the Balrampur stock was making new highs and getting resisted by the 200 day EMA. The stochastic oscillator had a lower high, indicating a negative divergence and a 'sell' signal. A 30% correction followed.

In Mar '09, the stock was consolidating sideways when the stochastic oscillator gave an early 'buy' signal by moving up from the 'oversold' zone. The stock price nearly doubled within a month.

In May '09, the stock made a new high above Rs 80 but the stochastic oscillator made a lower high - again a negative divergence and a 'sell' signal. A price correction should follow.

In the example above the 'slow' stochastic oscillator - that uses a 3 day average of the %K - has been used. I find it more useful than the 'fast' stochastic which tends to fluctuate more, giving false signals.

For timing entry/exit there are few technical indicators that can provide such 'leading' (i.e. early) indications. But I must reiterate that technical indicators work best when several of them are used together to determine trends.

In future posts, I plan to write about two other useful technical indicators - the MACD and the RSI.

Stock Chart Pattern - Balrampur Chini

Enough of gloom and doom. In this week's stock chart pattern discussion, I will discuss some thing sweet, for a change. Though I've never quite understood the intricacies of the sugar sector, I do know that the one stock to own in this space is Balrampur Chini.

A look at the 3 months bar chart pattern of Balrampur Chini will show how the trend change in an individual stock gradually takes shape:-

 

(Please right-click on the image above and open it in a new tab or window for a better view.)

The stock closed above its 200 day EMA on Apr 8, '09 and since then has stayed above the long term moving average. That was the first indication of the stock entering a bull phase.

Around the middle of April '09, the 20 day EMA moved above the 200 day EMA from below, just about the time that the 200 day EMA flattened out and started rising. Those were the second and third indications that the stock was in a bull phase.

Volumes increased significantly throughout April '09 and hugely spiked up (nearly 5 times its average volumes over the past 3 months) in yesterday's trade. So the volumes confirm the change of trend.

As an investor, what should you do? Is this a good time to enter? To answer those important questions, let us look at the other technical indicators.

The 50 day EMA is moving up but is still below the 200 day EMA. That will be the final confirmation of the trend change. Looks like it will happen soon enough.

The slow stochastics moved down from overbought zone and is again going up, with the %K above the %D line. This is a bullish sign.

(It is interesting to note what happened in early Mar '09. The slow stochastics moved up from the oversold zone with the %K line bouncing off the %D line on Mar 18, '09. That was the first indication of the uptrend to follow. The RSI also moved above the oversold zone around the same time. The MACD and ROC gave 'buy' signals somewhat later.)

Currently, the MACD and its signal line have flattened and are touching each other, indicating indecision. But both the ROC and RSI are moving down while the stock has made a new high. Both are negative divergences, and is bearish.

On the long term charts, Balrampur has moved up from its 52 week low of 30 in early Dec '08 to hit 81.50 today (a rise of more than 160%). The move from its previous and higher low of 42 in early Mar '09 has been a whopping 95%.

But, today's trade was also a 'reversal day' - a higher high and a lower close than yesterday's trade. Even if the stock doesn't have a big fall, it will definitely encounter some profit booking after a huge rise.

Bottomline? Commodity sector investments can give phenomenal returns if you know how to ride the cycle. Sugar is also a sector that has huge political implications, with majority production in the heartland of India. I would wait till the election results come out before entering.