Technical updates – Jagran Prakashan and Navneet Education

The printing and publishing industry rarely gets a second look from most small investors. The reason is simple. Newspapers and children’s school books and stationery do not fall under the preferred ‘exciting’ or ‘high tech’ categories.

Savvy investors know how to cut through the glitter and marketing hoopla that surround popular stocks, and look for steady, boring businesses that generate cash from operations, pay dividends and have manageable debt.

Jagran Prakashan and Navneet have steady growth, net margins exceeding 10%, RoE more than 20%, Debt/Equity ratio less than 0.5 and pay regular dividends. There aren’t many companies which can boast of such numbers.

Jagran Prakashan

The stock price of Jagran spent 6 months consolidating sideways in bear territory before breaking out upwards in Mar ‘14. The stock closed at a high of 135 in Jul ‘14, but negative divergences on all four technical indicators, which failed to touch new highs, led to a correction down to the support-resistance level of 108 in Aug ‘14.

The next leg of the rally took the stock to a small ‘double top’ at 145 in Dec ‘14. The subsequent correction dropped the stock below its three EMAs into bear territory and ended with another test of support from the 108 level in May ‘15.

The stock managed to cross above its three EMAs into bull territory after three failed attempts and closed at a slightly lower top of 142 on Aug 10 ‘15. It is undergoing a bit of correction, and should resume its up move soon.

Valuation looks a little stretched. Dips can be used to add.

Navneet Education

The stock was in a sideways consolidation in bear territory for 7 months before breaking out above its three EMAs in Apr ‘14. The bull rally received good support from the rising 50 day EMA.

The stock closed at a high of 117 in Jan ‘15, corrected down to its 50 day EMA and then rose to a slightly lower top of 116 in Feb ‘15. The ‘double top’ reversal pattern led to a correction below all three EMAs into bear territory.

The stock bounced up after receiving support from the 90 level in May ‘15, and rose to a lower top of 109 in Jul ‘15. It again entered a corrective phase – triggered by negative divergences in three of the four technical indicators.

The stock is looking oversold, and may resume its up move soon. Can be accumulated slowly.

Stock Chart Pattern - Jagran Prakashan (An Update)

In the previous update to the stock chart pattern of Jagran Prakashan – posted on May 4 ‘11 (marked by grey vertical line on chart below) – it was observed that the stock price was consolidating within a rectangular band between 105 and 140.

The prolonged consolidation may have frustrated long-term investors but provided good trading opportunities. The eventual break out from a rectangle can occur in either direction. In this case, the support level of 105 got decisively broken in Aug ‘11.

Note that after dropping below 105, the stock began consolidating within a bearish ‘rising wedge’ pattern from which it broke downwards – only to form another ‘rising wedge’ pattern. The break down from the second ‘rising wedge’ dropped the stock price to a closing low of 91 in Dec ‘11 that coincided with the bottom formed by Sensex and Nifty.

A third ‘rising wedge’ pattern formed on the closing chart pattern of Jagran Prakashan during Dec-Jan ‘12. An interesting variation of a ‘rising wedge’ can be observed. Instead of breaking downwards once more, the stock broke out upwards, accompanied by a volume surge.

This is an example why technical analysis is not a science. Chart patterns don’t always play out as expected, and one has to wait for the eventual break out. A ‘rising wedge’ is a bearish pattern from which the likely break out is downwards. However, perhaps due to the rally in the broader market, Jagran’s stock moved up.

The stock price formed a small bearish ‘double top’ pattern in Feb ‘12 that coincided with the tops made by Sensex and Nifty. Note that three of the four technical indicators – ROC, RSI, slow stochastic – also formed double tops. The stock dropped below all three EMAs in Mar ‘12, consolidated within a ‘pennant’ (narrow triangle) for 5 weeks before dropping all the way down to 80 in May ‘12.

A steady rally – marked by blue uptrend line – has taken the stock price above its 200 day EMA. The 20 day EMA is ready to cross above the 200 day EMA, and the 50 day EMA is likely to follow suit. Expect some resistance as the stock nears the level of 105.

Technical indicators are looking bullish, which means the stock is likely to move higher. Margins have been under pressure because of steep rise in the cost of newsprint, plus losses from two newly-launched Punjabi Jagran editions. Acquisitions of Nai Dunia and Nav Dunia – Hindi newspapers published from MP and Chattisgarh - should add to top and bottom lines. Dainik Jagran remains the largest read daily in India.

Bottomline? Stock chart pattern of Jagran Prakashan appears to be emerging from a long bear phase. Accumulate with a stop-loss at the uptrend line (currently at 90). Alternatively, wait for a convincing move above 105 to enter. The company generates a lot of cash from operations and is a regular dividend payer.

Stock Chart Pattern - Jagran Prakashan (An Update)

The stock chart pattern of Jagran Prakashan, which was last analysed back in June ‘10, hasn’t been able to progress much. From Sep ‘09 onwards, the stock has been trading within a rectangular band between 105 and 140 – frustrating long-term investors but providing reasonable trading opportunities.

Why am I writing about a company that has obviously failed to attract much investor attention? Because that is precisely where an opportunity may lie. A boring company name, a boring business - printing and publishing a newspaper which has the largest circulation in India, and earns sacks full of cash from its operations. With net profit margin above 15%, low debt/equity ratio, and regular dividend payments, it is just the kind of company that Peter Lynch recommends small investors should buy.

Why isn’t the stock price going anywhere? That’s a good question. Some times a company with good fundamentals gets overlooked by the market for long periods. But eventually, the market wakes up to the company’s potential, and the patience of long-term investors get rewarded. Till that happens, investors can take a look at the one-year bar chart pattern of Jagran Prakashan to time their entry and exit:

It is interesting to note how the long-term support-resistance levels of 105, 120 and 140 came into play during the past year. Back in May ‘10, the stock had bounced off its support at 105, quickly rose to 129 in Jun ‘10, dropped down below 120 to seek support from its 50 day EMA, touched the 140 level intra-day in Jul ‘10 only to drop down to the 120 level.

Another intra-day top in Aug ‘10 was at 144, but the price dipped to the 200 day EMA, only to bounce up all the way to an intra-day high of 142 in Sep ‘10. Another correction down to the 50 day EMA, followed by a rally to an intra-day high of 147 and a close at 141.50 on Oct 8 ‘10. On the next trading day (Oct 11 ‘10), the stock price closed at 140.35. These were the only two closes above 140 during the past year.

Penetration of any support or resistance level should follow the 3% ‘whipsaw’ leeway. In other words, the stock needed to close above 144 for a few days. That never happened, though on 7 occasions the stock rose to intra-day highs above 144. Technically, the support level of 140 hasn’t been broken.

The Oct ‘10 top was higher than the Sep ‘10 top, but the MACD, RSI and slow stochastic reached lower tops. The negative divergences gave adequate warning that the bull rally was coming to an end. The correction from the Dec ‘10 top of 148 took the stock price below all three EMAs, to the support level of 105 in Feb ‘11. The subsequent rally rose above the 200 day EMA for several days and touched a high of 131.70 on Apr 19 ‘11 – an exact 61.8% Fibonacci retracement of the correction. But the price has slipped below the 200 day EMA to the support level of 120.

The technical indicators are looking bearish. The MACD is below its signal line, and falling towards its ‘0’ line. The ROC has dropped into negative territory, below its 10 day MA. The slow stochastic is about to enter its oversold zone. Only the RSI is giving a contra-indication by moving above the 50% level. The price may not drop too much.

Bottomline? The stock chart pattern of Jagran Prakashan is trading between 105 and 140 for almost 21 months. Prices can break out of such a rectangular pattern in either direction. Any dip below the 120 level can be used for entry, but with a strict stop-loss at 102. If the stock price breaches the 140 level on strong volumes, it can test its previous bull market high of 170.

Stock Chart Pattern - Jagran Prakashan (An Update)

The stock chart pattern of Jagran Prakashan was analysed 10 months back, after it had fallen from 170 to 40 during the bear market. The stock made a bullish rounding bottom pattern and rose to 105, which was the 50% Fibonacci retracement level of the entire fall.

The levels of 120, 140 and 170 (the bull market top) were mentioned as possible up sides. I often face questions from readers about different stocks and their levels. Where can it fall? What is the up side?

The simplest way to find out is to draw longer-term support-resistance lines. More often than not, these longer-term support-resistance lines provide clues to entry and exit points.

In the 3 years bar chart pattern of Jagran Prakashan, several support-resistance lines have been drawn, and the purpose of each will become clear soon:

The level of 105, touched in Jul '09, was not only the 50% Fibonacci retracement level of the bear market fall but also a long-term support-resistance level. Expectedly, there was some selling. The stock fell to 85 in Aug '09.

That level corresponded with another longer-term support-resistance line, and previous tops made in Jun '09. It received support, moved up to test the 105 level again, moved down to 92 and then spent about 2 months oscillating near the 105 level.

It eventually broke upwards out of the sideways consolidation zone and touched 120 in Oct '09. Almost immediately, it corrected down to the 105 level. The 120 level also happens to be the trend deciding 61.8% Fibonacci retracement level of the entire bear market fall!

[For those who don't know (or remember) how to calculate Fibonacci retracement levels, here is an example:

170 - 40 = 130 (the entire bear market fall); 0.618 x 130 = 80; 40 + 80 = 120.]

The stock bounced up only to struggle around the 120 level for a month before moving up to touch 142 twice - in end-Dec '09 and early-Jan '10. Here it faced resistance from another longer-term support-resistance level.

Note that while the stock was making higher tops from Jun '09 to early-Jan '10 (marked by the upward sloping line), the technical indicators were all making lower tops. The combined negative divergences prevented the stock from moving up any further.

After dropping down to the 120 level by end-Jan '10, the stock consolidated for 3 months around it and then fell below the 200 day MA to the 105 level in May '10. Once again it bounced up to 120, and after a brief struggle, moved up to 130. At today's closing price of 125, it is trading at a P/E of 21.7.

Fundamentally, the company continues to do well, with low debt, positive cash flows from operations, decent margins, and can be added on any dip below 105. Closer to 85 will provide a better 'Margin of Safety'.

Bottomline? The stock chart pattern of Jagran Prakashan is almost a text book example of how a stock behaves near long-term support-resistance levels. Existing holders can book part profits. New entrants can wait for likely lower levels.

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Stock Chart Pattern - Jagran Prakashan

The 2 years bar chart pattern of Jagran Prakashan is making a prolonged bullish saucer like formation that may see a new high in the medium term. But before we get to the technical nitty-gritties, a few words about the fundamentals.

The company's Hindi language newspaper, Dainik Jagran, not only has the largest circulation in the country, it exceeds the circulation of all the English language dailies put together.

Such a leadership position allows it to charge premium advertising rates which adds to profitability. It also owns, together with Yahoo, the largest Hindi language portal.

Steady growth into new towns and territories, decent profits, good cash flows from operations, regular dividends, managable debt - point to just the kind of stock that should find a place in any long-term portfolio. So, why did I pass it up when it was going abegging at 40?

Because of doubts about the management. This is a family-run outfit in the truest sense. That means, top management is stuffed with family members of various ages at fat salaries - some of whom are prone to bickering leading to litigation. That puts a question mark on the long term stability of the organisation in one's mind. The other negative is the high P/E of 33 which leaves very little 'margin of safety'.

Technically, the stock made a triple bottom and moved up from 40 to 105, which was a 50% Fibonacci retracement of the entire bear market fall from 170 to 40. Little wonder that it is facing resistance at current level.

The up move has seen three corrections, two of which took support at the 50 day EMA and one at the 200 day EMA. Such a move makes the likelihood of a further up move a little stronger. The next resistance should occur at 120, which is also near the 61.8% Fibonacci retracement of the bear market fall. Beyond 120, resistance levels are 140 and 170.

The four technical indicators - all oscillators - are tracking the stock movements. This is typical in long term charts, as the short term noise tend to get smoothened out.

Bottomline? The stock chart pattern of Jagran Prakashan is another example of why investors should worry less about index movements and concentrate on individual stocks. Investors who like growth stocks can add a small quantity on a dip. This isn't a value play.

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