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 - Navneet Publications (An Update)

In the previous update to the stock chart pattern of Navneet Publications (posted back in Oct 20, 2011 – marked by grey vertical line in chart below), the recommendation was to ‘use dips to buy’, because the stock was in an uptrend in a bull market.

However, the caveat was: “Bears will remain in the picture as long as the stock fails to move above its previous top of 74.” Two weeks after my post (on Nov 4 ‘11), the stock rose to touch an intra-day high of 71 – but it turned out to be a ‘reversal day’ (higher high, lower close).

Also, all four technical indicators showed negative divergences by touching lower tops while the stock price rose higher (marked by blue arrows). The combined negative divergences and the ‘reversal day’ pattern warned of a possible correction, which came swiftly as it coincided with the correction in the broader market.

The stock price dropped past the support level of 61, the 200 day EMA and the blue uptrend line in rapid succession. The 50 day EMA crossed below the 200 day EMA – the ‘death cross’ confirming a bear market. The stock price continued to drop and breached the long-term support level of 52 in Dec ‘11.

Observant readers may note that while the stock touched a new low of 50.60 on Dec 20 ‘11, all four oversold technical indicators had already started moving higher – the combined positive divergences hinting that the sharp correction was over.

For almost 12 months after touching its low, the stock price consolidated sideways within a rectangular band between 52 and 61 – testing the patience of investors, but providing traders with some decent trading opportunities.

In late Nov ‘12, all three EMAs almost merged with each other. As often happens, a sharp move followed, which turned out to be upwards. Rectangular consolidations are unpredictable because the eventual break out can happen in either direction. In this case, the up move breached the 61 level on a volume spurt – which gave technical validity to the upward break out.

The stock price rose to touch an intra-day high of 70.20 on Dec 24 ‘12, testing but failing to cross its Nov ‘11 top. A correction/pullback ensued. The stock price has almost dropped to the top of the rectangular consolidation range. Such a pullback after an upward break out on strong volumes provide an opportunity to enter.

The daily technical indicators are bearish, which means the correction may not be over just yet. MACD is still positive, but is falling rapidly below its signal line. ROC is negative, and falling below its 10 day MA. RSI has bounced up from the edge of its oversold zone, but is below its 50% level. Slow stochastic has entered its oversold zone.

Fundamentals remain reasonably good, though cash flows from operations dipped into the negative in FY12. Steady growth in top and bottom lines is a positive. Q3 results should be checked before entering. Alternatively, enter with a stop-loss at the rising 200 day EMA.

Bottomline? The stock chart pattern of Navneet Publications has entered a bull market after a long sideways consolidation. Bears have not been vanquished yet, so slow accumulation rather than buying a large lot is advised. The company is investor-friendly and pays decent dividends.

Stock Chart Pattern - Navneet Publications (An Update)

The previous technical update of the stock chart pattern of Navneet Publications was posted about a year back. The stock had touched a new closing high of 74, but the technical indicators failed to reach new highs.

The negative divergences was an advance warning of a likely correction. The stock was trading at a high TTM P/E of 25.8, which led me to conclude as follows:

‘The stock chart pattern of Navneet Publications is looking a little overbought and ripe for a pullback. Existing holders may decide to book partial profits..’

On hindsight, the timing of my suggestion appears to be a bit fortuitous, as the stock started to correct from the very next day after my post. Let us have a look at the closing chart pattern of Navneet Publications to see how the stock has fared in the past year or so:

The stock’s price formed a head-and-shoulders reversal pattern during the months of Sep, Oct and Nov ‘10. There are two interesting and important points to note. First, the volumes – which spiked during the formation of the left shoulder and the head. During the formation of the right shoulder, volumes did spike up but was quite a bit lower. This is characteristic volume action for a head-and-shoulders pattern.

The second point – though this isn’t a ‘rule’ – is the ‘pullback’ to the ‘neckline’ of the head-and-shoulders pattern immediately following the break down below the ‘neckline’. Such pullbacks provide selling opportunities.

Head-and-shoulders patterns have measuring implications. A stock’s price is expected to fall the same amount below the neckline as the height of the head above the neckline. In this case, the head was at 74 and the neckline at 60, giving a downward target of (60 – 14 =) 46.

However, the stock dropped just below the rising 200 day EMA to 53 in Dec ‘10 before bouncing up above the neckline to 64 in Jan ‘11. Downside targets usually fall short, but this was a big miss – indicating the inherent strength of the stock. The stock eventually dropped to a slightly lower close of 52 in Feb ‘11 but on the bar chart pattern (not shown) it touched a slightly higher bottom.

Note the flat OBV indicator during Jan and Feb ‘11, when the stock price was correcting. The positive divergence hinted at a rally, which is still continuing. Another very interesting point is the behaviour of the 50 day EMA, which merged with the 200 day EMA for a few days in Mar ‘11 but never crossed below it.

Though the stock dropped almost 30% from its peak of 74 to its low of 52, a bear market didn’t get confirmed since the ‘death cross’ failed. The subsequent bullish pattern of higher tops and higher bottoms, and a rising 200 day EMA means that the stock is in a bull market - outperforming the Sensex and Nifty.

However, the bears will remain in the picture as long as the stock fails to move above its previous top of 74. The stock has given zero returns in the past 12 months (except the dividend) but has provided plenty of trading opportunities.

The technical indicators are mildly bullish. The fundamentals remain quite strong with positive cash flows from operations, and steady rather than spectacular growth in top and bottom lines. A good defensive stock for conservative portfolios.

Bottomline? The stock chart pattern of Navneet Publications is in a bull market. The rising OBV indicates accumulation by smart investors. Use dips to buy. Unlike most small-cap stocks, this one trades in decent volumes. However, the price volatility indicates that the stop-loss should not be set too tight.

Stock Chart Pattern - Navneet Publications (An Update)

The chart pattern of Navneet Publications had risen from a low of 14 in Oct ‘08 to a high of 45 in Sep ‘09 (adjusted for 3:2 bonus), and then entered a sideways consolidation in a ‘flag’ pattern formation.

I had written a technical analysis of the stock back in Dec ‘09 at the request of reader Ruy. The stock had closed at 38.90 and I had made these comments:

‘Such a pattern is usually a continuation formation which should end with an upward break out…bulls can take heart from the OBV which has been gradually rising during the consolidation phase…The stock chart pattern of Navneet Publications is indicating accumulation by the smart money. Investors can buy in small lots with a stop-loss at 32. On an upward break out, the stock can move up to 70 in the medium term.’ 

Yesterday, reader Narinder left a comment that the target of 70 had been achieved, and requested a technical update of the stock. Let us look at the 14 months bar chart pattern of Navneet Publications:

Note the ‘flag’ pattern following the 3:2 bonus adjustment (marked by the bell). While the stock made lower tops and higher bottoms as it consolidated sideways within the pattern, the OBV kept moving up – indicating accumulation.

The expected upward break out happened shortly after I wrote the earlier post, followed by a pullback that received support at the rising 20 day EMA before it could drop to the upper (downward-sloping) trend line.

A sharp spike on strong volumes took the stock to a high of 54.85 in Jan ‘10. Note that both the RSI and slow stochastic made lower tops (marked with small downward-sloping arrows). The negative divergences preceded an 8 months long sideways consolidation in a rectangular pattern between 45 and 57.

Such long consolidations usually end with a strong break out in the direction that the stock was moving prior to entering the consolidation pattern. In this case, upward. Note that the OBV was steadily moving up during the 8 months of sideways consolidation, indicating accumulation.

The minimum upward target of the rectangular consolidation between 45 and 57 is the width of the rectangle (57 – 45 =) 12 added to the upper edge of the rectangle; i.e. 57 + 12 = 69.

The rectangular consolidation hadn’t even formed back in Dec ‘09, when I had set the upward target at 70. How did I do it? No magic or prediction capability. Just knowledge and experience of technical analysis.

To calculate upward target, the ‘pole’ of a ‘flag’ pattern is added to the break out point. In this case, the ‘pole’ was the rise from the low of 14 to the high of 45, or 31 points. Add 31 to 38.90 (which was the closing rate on the day I wrote the earlier post) and you get 69.90 – rounded off to 70.

I didn’t know that 38.90 was going to be the break out point – so the target was an educated guess. In technical analysis, we work with approximate, and not exact, levels. 

A couple of interesting points to note. The upward break out from the rectangular pattern in Aug ‘10 was on a strong volume spike, followed immediately by a pullback down within the rectangle range. This happens often. The strategy to be followed for such situations is to buy a small quantity on the break out, and then add more – either on the pullback, or on the next dip.

Today’s (Oct 6 ‘10) intra-day high was 74.80 and the close was 74.10. Our minimum targets have been met. What next? Note the negative divergences in the MACD, RSI and slow stochastic – all three have made lower tops as the stock touched a new all-time high.

A correction down to the 20 day EMA is very much on the cards. The stock is in ‘blue sky’ territory – which means there are no known resistances. However, the TTM P/E of 25.8 leaves no Margin of Safety.

Bottomline? The stock chart pattern of Navneet Publications is looking a little overbought and ripe for a pullback. Existing holders may decide to book partial profits, or hold with an 8% trailing stop-loss. Prudence demands that fresh entry should await Q2 results.

Stock Chart Pattern - Navneet Publications

The stock chart pattern of Navneet Publications gives a clear indication that it is fancied by the investor community. And why not?

A four decade old publishing house in the educational segment that has steady growth, positive cash flows from operations, low debt, low P/E, regular dividend payments and more than 60% equity holding by the promoters are enough reasons for the stock to find a place in any long-term investor's portfolio.

The educational publication division generates more than 50% of the revenues and the bulk of the profits. But it is a low-growth business. The government supplying free books to school children under the 'Education for All' programme is a growth-dampener. Lack of regular revision in school syllabi also hampers growth. Add to that the problem of book piracy faced by all established publication houses.

The stationery side of the business is growing much faster, but it has low margins which is beginning to affect the overall profitability of the company.

Let us now take a look at the 1 year bar chart pattern of Navneet Publications:-

From the high of 66 (the 3:2 bonus-adjusted price of this Rs 2 face-value stock) made in Jan '08 the stock dropped to a low of 14 in Oct '08. The smart rally from Mar '09 took the stock all the way to a high of 45 in Sep '09, retracing nearly 60% of the entire bear market fall.

The resistance from near the 61.8% Fibonacci retracement level proved too strong. Thereafter, the stock has been in a flag-like sideways consolidation.

Such a pattern is usually a continuation formation which should end with an upward break out. But things are looking a bit bearish at the moment with the stock slipping below its 50 day EMA and dragging the 20 day EMA down with it.

The MACD has entered the negative zone and is marginally below the signal line. The MFI has bounced off the 50% level after a couple of visits below it. But bulls can take heart from the OBV which has been gradually rising during the consolidation phase.

Bottomline? The stock chart pattern of Navneet Publications is indicating accumulation by the smart money. Investors can buy in small lots with a stop-loss at 32. On an upward break out, the stock can move up to 70 in the medium term.

(A hat-tip to reader Ruy for suggesting this stock.)