Technical updates – Sanghvi Movers and Sintex Industries

In the previous technical update on Sanghvi Movers and Sintex Industries, both stocks were recovering after long corrective moves.

The technical structure of the charts haven't changed much. Both stocks are once again in recovery mode after strong bear attacks.

However, in the intervening period, both stocks rose to touch new highs, and are trading at much higher levels than three years ago after re-entering bull territories.

Sanghvi Movers

After closing at a high of 396.70 in Aug '15, the stock corrected all the way down to 197.70 in Dec '16 - a huge 50% correction from its top.

It has since managed to rally above its three EMAs into bull territory, but remains below the blue down trend line and the 'support-resistance' level of 282.

The 'golden cross' of the 50 day EM above the 200 day EMA that technically confirms a return to a bull market is still awaited.

Daily technical indicators are correcting overbought conditions. A pullback towards the 200 day EMA is likely. That will be a good buying opportunity.

Sintex Ind

The stock also corrected nearly 50% from its top of 132.20 touched in Mar '15, but is back in bull territory above its three EMAs after forming multiple bottoms around 70-72. 

The 'golden cross' (marked by light blue oval) of the 50 day EMA above the 200 day EMA has technically confirmed a return to a bull market.

Daily technical indicators have corrected overbought conditions and showing downward momentum. MACD has formed a 'rounding top' reversal pattern in bullish zone. ROC, RSI and Slow stochastic have slipped into bearish zones.

The stock is seeking support from its 20 day EMA, but may correct down to 104. That will provide an entry opportunity.

Technical updates – Sanghvi Movers and Sintex Industries

Shareholders of infrastructure stocks had a rough time over the past couple of years. Most stocks suffered badly at the hands of bears as India’s economic growth slowed down and investments in infrastructure and capital goods petered off.

In a previous post on Thermax and Voltas, it was seen that the closing charts of both companies had shaken off the bears to touch new 2 year highs. The situation on the two charts below tell a different story.

Both stocks bottomed out and re-entered bull territory – the ‘golden cross’ of the 50 day EMA above the 200 day EMA technically confirm that. Both have also doubled from their respective bear market lows. However, they are struggling to cross long-term support/resistance levels.

Sanghvi Movers

The stock price of Sanghvi Movers touched a bottom of 37.35 on Aug 21 ‘13 and then a slightly higher bottom of 37.85 on Aug 27 ‘13. The small ‘double-bottom’ reversal pattern ended the long bear market. After consolidating sideways with a slight upward bias for the next 6 months (‘accumulation’ phase), the stock rose sharply above its 200 day EMA on a volume surge on Mar 10 ‘14, and continued to rally strongly till it approached its long-term support/resistance level of 85.

Note how the 85 level provided strong support in Aug ‘12 and Nov ‘12 (marked by green up arrows). After a convincing downward breach in Feb ‘13, the 85 level remained untested till the stock rose to touch a 52 week high of 83.45 on Apr 29 ‘14 (marked by red down arrow). Technical indicators are in overbought territories. ROC, RSI and Slow stochastic are showing negative divergences by failing to touch new highs. A correction is likely.

Sintex Ind

The stock of Sintex was a darling of small investors 4-5 years back. Its bear market ended with a classic ‘inverted head-and-shoulders’ bottom reversal pattern that formed during Aug-Sep ‘13. Why classic? Because the pattern formed at the end of a long down move. Any ‘reversal’ pattern must have something to reverse. (Some times a pattern may look like a head-and-shoulders pattern, but if it doesn’t form at the end of a long up/down move then the pattern should be rejected.)

Note the strong volumes as the stock broke out above its ‘neck line’ (marked by blue line). That technically confirmed the pattern. The 52 level had provided good support during May ‘12, Aug ‘12 and Mar ‘13 (marked by green up arrows). But after 52 level got convincingly breached, it became a resistance level in May ‘13 (marked by red down arrow), and has not been tested since.

Overbought technical conditions have been corrected and all four indicators are still in bullish zones, but looking bearish. Expect some correction/consolidation.

Stock Chart Pattern - Sintex Industries (An Update)

In the previous update a year back, the concluding comments were:

“The stock chart pattern of Sintex Industries is an example of how a stock that appears to be fundamentally investment-worthy is to be avoided for technical reasons. Sell.”

Lately, there has been a lot of chatter in various investment groups about the stock – so it may be worthwhile to have a look at the two years bar chart pattern of Sintex Industries and find out if there has been any worthwhile changes to reconsider the earlier advice:

A grey vertical line has been drawn to indicate the date on which the previous update was posted. Note that the expected ‘death cross’ (of the 50 day EMA below the 200 day EMA) happened a few days later, but the stock price found good support at 137 over the next two months and smartly bounced up above all three EMAs.

The rally topped out at 194 on May 31 ‘11 – much lower than its Nov ‘10 peak of 233, but higher than closing level of 168 when the previous update was posted in Jan ‘11. The three EMAs came quite close to each other, though they didn’t quite get entangled. This is often a precursor to a sharp move. The move came soon enough, but not before the stock price received good support from the 137 level once more during Aug ‘11.

Another upward bounce stalled just before reaching the falling 200 day EMA, and once the stock dropped below 137 in Sep ‘11, it fell in steps all the way down to 59 on Dec 16 ‘11 – losing 75% from its Nov ‘10 peak. Mid-cap (and small-cap) stocks find it very difficult to recover from such steep falls, and Sintex is unlikely to be an exception.

Despite a volume surge during the rally over the past month, the stock price has so far failed to climb above its falling 50 day EMA and is trading way below its 200 day EMA. The technical indicators are looking bullish, so the rally may not be quite over yet. The MACD is rising above its signal line, and is about to enter the positive zone. The ROC is positive, but has dipped below its 10 day MA. The RSI has just entered its overbought zone. The slow stochastic is about to do the same.

Bottomline? The chart pattern of Sintex Industries clearly shows that the bears are on top. The present rally should be used to exit the stock.

Stock Chart Pattern - Sintex Industries (An Update)

In the comments section of the previous update to the stock chart pattern of Sintex Industries, a link to a Business Standard article dated Dec 31 ‘10 was provided. The article mentioned that valuations were attractive, a recent acquisition was likely to be top-line and bottom-line accretive, the company’s businesses were growing, the correction in the stock price had been undue, and the stock had a price target of 252.

Well, the valuations have become even more attractive as the stock price continues its correction from the Nov ‘10 top of 237 (adjusted for the 2:1 split in Oct ‘10). The face value of the stock is now Re 1 – and that could be one of the reasons for the ‘undue’ correction. The number of shares in the demat accounts of investors have doubled – thanks to the split. As often happens after bonus issues and splits, the additional liquidity leads to selling. In this case, the correction in the stock happened to coincide with the corrections in the BSE Midcap index, and the Sensex.

What should investors do? Let us look for clues in the one year bar chart pattern of Sintex Industries:

The stock reached a split-adjusted high of 168 in Apr ‘10 (equivalent to 336 for the then Rs 2 face-value stock), and then corrected down to 131 where it received support from the 200 day EMA. The subsequent rally touched a new high of 229 in Oct ‘10 on a volume surge prior to the split.

Post-split, the stock resumed its rally and touched another new high of 237 in Nov ‘10 (which was still well below the Jan ‘08 split-adjusted high of 308). Note that while the stock price reached a new high, the MACD, ROC and RSI made lower tops (marked by blue arrows) – negative divergences that gave a warning about an impending correction. The slow stochastic touched a higher top, but was overwhelmed 3 to 1 by the other indicators. This is one reason for looking at several indicators in technical analysis.

The stock price broke below the 200 day EMA and the 168 level on Dec 22 ‘10 on a volume spurt, but managed to close above 168. A brief rally found resistance from the falling 100 day EMA, and this time the stock first fell below the long-term moving average before closing below 168 two days in a row. Today, the stock bounced up to close exactly at 168.

The technical indicators are all bearish, and the trend continues to be down. The 20 day EMA is about to drop below the 200 day EMA. The 50 day EMA is touching the 100 day EMA, and both are falling. The MACD is negative and below the signal line. The ROC is also negative and below its 10 day MA. The RSI twice failed to move above its 50% level and has almost dropped to its oversold zone. The slow stochastic has entered the oversold zone.

The only silver lining for the bulls is the positive divergences in all four technical indicators, which have made higher bottoms while the stock price made a lower bottom (marked by blue arrows). That could lead to another rally, but will it be strong enough to revive the bull market?

Technically, the answer is: no. The 33% correction from the recent high of 237 to yesterday’s low of 158 has pushed the stock into a bear market. The bearish pattern of lower tops and lower bottoms is in tact. Higher volumes on down days and lower volumes on subsequent up days indicate more sellers than buyers. The final confirmation of the bear market – the 50 day EMA falling below the 200 day EMA is still awaited, but seems imminent.

What about the fundamentals? Are they really attractive? Not quite. The debt/equity ratio is more than 1; profits took a hit and cash flows from operating activities turned negative last year. The market has been unkind to companies with large debt on its books. Things may improve in the next financial year, but we need to wait and see.

Bottomline? The stock chart pattern of Sintex Industries is an example of how a stock that appears to be fundamentally investment-worthy is to be avoided for technical reasons. Sell.

Stock Chart Pattern - Sintex Industries (An Update)

My previous look at the stock chart pattern of Sintex Industries was 9 months ago. The stock had jumped more than 250% from a low of 70 to a high of 250 in 3 months before pausing for breath. I had then advised investors to await a correction to the 140-150 level before adding this Rs 2 face value stock.

Let us have a look at the 1 year bar chart pattern of the Sintex Industries stock to check its progress through this long bull rally:-

The stock did correct, but only down to 183 in July '09 before embarking on an up move that took it to a new high of 297 in Jan '10. Note that both the RSI and MFI made slightly lower tops while the stock made a new high.

The negative divergence led to a correction down to 233 before the post-budget bullishness pushed the stock up to today's high of 280 on decent volumes. Will the stock break above its previous top of 300?

The stock has long term resistance at the 300-310 zone. Also have a look at the RSI and MFI. Both are touching their overbought zones - from where they have retreated several times earlier. Chances are that the current up move may make limited progress.

The consolidated profits for Q3 '09 were flat while the standalone profits dipped more than 11%. The fly in the ointment was the poor performance of the textile segment and the not-so-great results of its overseas acquisitions.

With the automobile plastic moldings segment showing an up tick and the overall plastics business contributing nearly 87% of total revenues, the company should get back on the higher profits track from next year. The steady rise in the OBV indicates that investors are logging in.

After a dip in 2008, the cash flows from operations have perked up considerably. The company had resorted to a lot of borrowing (for a failed German acquisition) and is therefore sitting on a cash pile. A few more acquisitions may be on the cards. It acquired 6 companies in the past 2 years - 2 in the USA, 1 in France and 3 in India.

In the longer term charts, the stock had made a mountain-like pattern with a peak at 615 in Jan '08 followed by a steep drop of 88.6% to 70 in Mar '09. Small and mid-cap stocks usually have a tough time recovering from such huge falls. It is no wonder that the stock has retraced only 42% of its bear market fall and hasn't gained much in the past 9 months.

Bottomline? The stock chart pattern of Sintex Industries is getting close to a resistance zone with limited up side potential. Add only after a deep correction down to the 150-180 band. Existing holders can take some profits home.

Stock Chart Pattern - Sintex Industries

The stock chart pattern of Sintex Industries gives clear indication that this fundamentally strong company is coming out of the down turn well. No wonder it has caught the recent attention of the pink papers.

The claim to fame of Sintex was the almost ubiquitous black plastic water storage tanks atop recently constructed houses. The company has moved on to bigger and better products which they sell to the global market place. Their pre-fabricated low-cost housing products order book exceeds their 2008-09 revenues by three times, as per this article.

What I like about the company is the growth in earnings, regular dividends, and positive cash flows from operations. But all is not peaches and cream. The growth in earnings has not been matched by a growth in cash flows from operations. Increasing interest payments is another concern.

Let us take a look at the one year bar chart pattern of Sintex Industries to see what the technicals are indicating:-

After making a low of Rs 70 on Mar 12, '09 the stock reversed trend and made a high of Rs 250 last Friday (Jun 5, '09) - rising more than 2.5 times on higher volumes in less than 3 months. The 'V' shaped bottom formation has been marked on the chart pattern.

After the sharp rise, the stock is consolidating sideways and has taken support from its 20 day EMA. In the process, the technical indicators have dropped from overbought zones.

The %K line of the slow stochastic has slipped below the %D line. The MACD has gone below its signal line. The RSI has moved down to its 50% level. Note how the RSI had reached heavily oversold levels in early March '09 - just before the stock chart pattern reversed direction. The ROC is marginally in the positive zone.

Bottomline? Long-term investors can consider putting Sintex Industries on their watch-list. It is a Rs 2 face-value stock and one should plan to add only on a correction to the Rs 140-150 level. Existing holders can book some partial profits.