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.)

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.