Stock Chart Pattern – SpiceJet (An Update)

Let's start with the good news first. Two years ago, Ajay Singh, the original promoter of SpiceJet, reportedly bought the debt-laden and about-to-be-shut-down company from Kalanithi Maran (of Sun TV) for Rs 2. 

The company has seen an upswing in its fortunes since then. Singh engineered a turnaround that moved the company back into the black after several years of losses. Capacity utilisation and on-time performance is one of the best in the domestic airline industry.

Lower oil (and ATF) prices helped in the turnaround. Govt's decision to revamp 50 under-utilised airports and announcement of 100% FDI in domestic airlines should further boost the growth of domestic airlines.

Now, the bad news. All is not well between Maran and Singh, with the former taking the latter to court for transgressions of their sales agreement. An adverse judgement could prove costly for the company.

More importantly - for existing and potential investors - the company's net worth is negative. It may take several years of profitable operations to clean up the balance sheet - which can be a chimera in the airline industry.

The daily bar chart pattern of SpiceJet shows that all the good news has already been discounted in the price. After touching multiple bottoms around 17 during Apr-Jun '15, the stock price shot up to touch a high of 95.30 on Jan 28 '16 - gaining a whopping 460% in 7 months.

All four technical indicators reached their overbought zones. Three of them - ROC, RSI, Slow stochastic - showed negative divergences by touching lower tops (marked by blue arrows). MACD formed a head-and-shoulders reversal pattern.

Bears used the opportunity to attack. The stock corrected more than 40% from its top, but found support at 55 near its rising 200 day EMA. That was a year ago.

Since then, the stock has been consolidating sideways in a 30 points range within a 'rectangle' pattern. The price has moved up to the top edge of the 'rectangle' for the first time since May '16. However, technical indicators are looking overbought. ROC and RSI are showing negative divergences by touching lower tops.

A 'rectangle' is usually a continuation pattern. Since the stock's price entered the 'rectangle' after a correction, the breakout should be downwards. However, a 'rectangle' is an unstable pattern. A breakout can occur in either direction. 

Since the stock is trading above its three rising EMAs in bull territory, the breakout can occur upwards as well. In fact, an attempted upward breakout today was thwarted by bears.

There is a saying about the airline industry: If you want to be a millionaire in the sector, start with a billion. Mallya and Maran have already proved the veracity of that adage.

If you are planning to enter the counter - don't. If you are an existing holder - book out. There are far better sectors to invest in. Which ones? Check out the link below:

Which sectors should you invest in?

Stock Chart Pattern – SpiceJet (An Update)

The previous update to the analysis of the stock chart pattern of SpiceJet was posted back in Sep ‘11 (date marked by grey vertical line at extreme left of chart below). Takeover of the company from financier Wilbur Ross by Kalanithi Maran of Sun TV was followed by the departure of senior management – some of whom were experienced airline industry hands.

Worse was to follow because DMK’s loss in the state assembly elections somewhat negated the political clout of the Maran family. High fuel prices and stiff competition from several private carriers hindered the prosperity of airline companies – despite growth in airline passengers.

Technically, the stock price dropped below the support level of 49 on a volume spurt, and the ‘death cross’ of the 50 day EMA below the 200 day EMA confirmed a bear market. Fall below a support level on strong volumes usually turns the support level into a resistance level for future up moves.

The bar chart pattern of SpiceJet below shows how price charts tend to have ‘memory’ of previous levels:

The stock price dropped to an intra-day low of 15.35 on Dec 22 ‘11 – managing to spare itself the blushes of turning into a ‘penny’ stock. A rally, which started along with the broader market and continued for 12 months – culminated with an intra-day high of 50.90 touched on Dec 7 ‘12.

Though the stock breached the 49 level on intra-day basis for a few days, it failed to close above 49. The stock gained more than 35 points (230%) from its Dec ‘11 low – excellent returns within one year. But its failure to convincingly breach the 49 level allowed the bears to return with a vengeance.

After several failed attempts to cross above the 49 level during Dec ‘12 and Jan ‘13, the stock price dropped sharply below all three EMAs and the blue uptrend line – pushing the stock down into bear territory. As often happens when a trend line gets breached, there was a pullback towards the trend line that provided another opportunity to sell.

The stock price dropped to a low of 25.90 on Mar 28 ‘13 – a 50% drop from its Dec ‘12 high, and a 70% retracement of its entire rally from the Dec ‘11 low. A double-bottom reversal pattern and a rally along with the broader market has taken the stock above all three EMAs. However, daily technical indicators are looking quite overbought. Another bout of correction is likely.

Does the price pattern reflect some fundamental change in the company? May be it is just on a hope of better times following the deal between Jet Airways and Etihad of Abu Dhabi that has brought some life back into the struggling airlines sector. A fall in fuel prices has also been positive.

Bottomline? The stock chart pattern of SpiceJet is trying to disentangle itself from a strong bear grip. Upside resistance is expected from the blue trend line and the 49 level. Demise of Kingfisher Airlines has partly reduced competition. But profitability in the airline sector is fleeting. The stock is not investment-worthy, but can be a trading bet due to high-volume price swings.

About FDI in Aviation and multi-brand retail – a guest post

When the UPA government first proposed introduction of FDI in multi-brand retail about a year back, the BJP opposed it vehemently and Mamata Banerjee’s TMC threatened to pull out of the UPA alliance. The government back-tracked and postponed the issue.

Now that FDI in Aviation and multi-brand retail have been re-introduced, the usual suspects are doing their song-and-dance routine once more. Will the government succumb again to their pressure tactics, or will they try to push through the much-needed reforms? Only time will tell.

In this month’s guest post, Nishit presents his point of view about how FDI in Aviation and multi-brand retail may benefit India and some Indian companies.

--------------------------------------------------------------------------------------------------------------------------------------

TV channels and newspapers are abuzz with the policy decisions of the Government in the past week. Let us look at a couple of decisions. FDI in Aviation and FDI in Multi-brand retail.

FDI in Aviation means foreign companies/airlines can hold up to 49% stake in Indian airline companies. Indian aviation sector is bleeding and there are airlines like Kingfisher which are on the verge of closing down. The main reasons for this are high Aviation Turbine Fuel (ATF) charges and price under-cutting by competing airlines.

Why will a foreign airline be interested in an Indian carrier? India is one of the fastest growing aviation markets in the world. Airlines like Emirates have flights from major cities in India to Dubai. They have not been able to penetrate Tier-2 cities, which have a lot of potential for out-bound travel. Now, if they take a stake in a domestic carrier they will be able to attract the customers of the domestic carrier for their international routes. E.g., if Emirates have a flight from Chennai to Dubai, then passengers from nearby smaller cities like Madurai can fly to Chennai on a domestic carrier in which Emirates has a stake before boarding the international flight to Dubai. They can also bring international best practices to optimise domestic business.

The companies most likely to benefit from FDI in Aviation could be Jet Airways and SpiceJet. In the unlisted space, GoAir stands a pretty good chance as well. Indigo has the option of going public to raise funds. Kingfisher has too many problems for anyone to be seriously interested.

FDI in multi-brand retail is a contentious issue. Opponents argue that it will hurt the Indian farmer and local ‘kirana’ stores. Contrary to this, it will hurt the middle-man and the trader community who make fat profits by buying vegetables very cheap from the farmer and selling it at expensive rates to the consumers. Peas, which the farmer sells at Rs 8, retail at Rs 32. The price hike is due to the commissions of the middle-men.

There are several safeguards in place for allowing FDI in multi-brand retail. Such stores can only be opened in cities with population exceeding 10 lakhs. There are only 53 such cities (out of 8000) across the country. Other safeguards include investment in cold chain, countervailing duties against cheap imports. Also, it would be too expensive to import vegetables. The farmer may gain thanks to contract farming. Consumers will gain thanks to cheaper pricing. An example is that of packaged products. The local grocer sells a packet of Brooke Bond Red Label tea to me for Rs 330. The mall gives it to me for Rs 289.

Organised retail already exists in the country, and their market share is a meager 4%. It also generates employment for semi-educated youth. ‘Kirana’ stores are existing side-by-side with large malls. Large amounts of agricultural produce rots every year because of insufficient transportation and storage facilities. FDI in multi-brand retail is expected to improve back-end logistics and systems that will reduce wastage and loss to farmers. Ultimately, old and inefficient ways of doing business have to make way for more modern and efficient processes.

In retail stocks, one can look at Pantaloon, Shopper’s Stop and Trent. Pantaloon is the best positioned as it has structured its business in such a way that it can have multiple tie-ups.

--------------------------------------------------------------------------------------------------------------------------------------

(Nishit Vadhavkar is a Quality Manager working at an IT MNC. Deciphering economics, equity markets and piercing the jargon to make it understandable to all is his passion. "We work hard for our money, our money should work even harder for us" is his motto.

Nishit blogs at Money Manthan).

Related Post

Will FDI in retail be good or bad for India?http://investmentsfordummieslikeme.blogspot.in/2011/12/will-fdi-in-retail-be-good-or-bad-for.html

Stock Chart Pattern – SpiceJet (An Update)

What a difference a year can make! In the previous update to the analysis of the stock chart pattern of SpiceJet, I had mentioned about some fundamental changes in the company. The two most important ones were the replacement of financier Wilbur Ross by Kalanithi Maran of Sun TV fame (or, should I say notoriety?), and the departure of senior management personnel including CEO Sanjay Aggarwal.

Technically, the chart pattern was in a bull market – a long consolidation within a rectangle was followed by high volume break out to a new high of 79 – with a 100% gain in less than a year. A correction had ensued, but I had expected the stock price to recover and test its Jan ‘08 peak of 105. The analysis was concluded with the following notes of caution:

”Keep a trailing stop-loss and ride the bull. But remember that experienced airline hands have left the organisation. The new owners have political clout, which is great for wheeling and dealing but not so great for success in a complex and competitive industry which requires constant capital infusion, and globally doesn’t make much money.”

A look at the one year bar chart pattern of SpiceJet should convince readers that my warning was appropriate:

The stock couldn’t cross the 100 mark, reaching a top of 97.45 on Nov 8 ‘10 – which turned out to be a high volume ‘distribution day’ (a higher high but a close near the day’s low opening price). The subsequent correction took the stock price below the 50 day EMA, followed by a good recovery to a lower top of 92.70 on Dec 6 ‘10 – which turned out to be another high volume ‘distribution day’. That was the signal for bulls to exit.

A quick drop to the rising 200 day EMA was followed by a milder upward bounce and then a drift down to the 200 day EMA where the stock spent several trading sessions. The decisive break below the 200 day EMA on Jan 27 ‘11 led to increasing volumes as the stock dropped to the support level of 49 (the lower edge of the rectangular consolidation zone between Dec ‘09 and Jul ‘10).

Note the huge spike in volume as the stock breached the support of the 49 level (marked by the blue arrow) on Feb 7 ‘11. The high volume was a signal that the breached support would become a strong resistance. Shortly thereafter, the 50 day EMA crossed below the 200 day EMA (marked by the light blue oval) – the ‘death cross’ formally confirming a bear market. A pull back to the 49 level culminated with an intra-day breach on Feb 17 ‘11 – which was a ‘reversal day’ that provided another opportunity to sell.

Two more attempts at a pull back to the 49 level in Apr ‘11 were thwarted by the falling 50 day EMA. The stock has been dropping deeper into a bear market, touching a 2 year low of 19.30 on Aug 19 ‘11 that was an 80% correction from its Nov ‘10 peak of 97.45. The technical indicators are showing bullish signs, but it is a bear market rally that may attract more selling.

There is a well-known joke about the airline industry: If you want to become a millionaire in the airline business, you should start with a billion. Vijay Mallya’s Kingfisher Airlines is a classic example. SpiceJet is no exception – except for the brief period when the Ross-Aggarwal team was at the helm. The number of air-passengers are increasing day-by-day. That doesn’t mean that the business is a profitable one.

Bottomline? The stock chart pattern of SpiceJet is deep within a bear market, and in danger of becoming a penny stock. The DMK’s loss in the recent state assembly elections in Tamil Nadu has negated the considerable political clout of the Marans. Their only hope will be the appearance of a white knight who can bail them out. But don’t count on it. Get out if you are still holding.

Stock Chart Pattern – SpiceJet (An Update)

When I had written about the stock chart pattern of SpiceJet back in Oct ‘09, things were looking good technically and the fundamentals were beginning to improve. The company was in good hands and the business outlook was improving day-by-day.

The airline industry is back in the headlines again. The laggard, cash-strapped, Kingfisher Airlines has got a lifeline with a large cash infusion (thanks probably to all the empty Kingfisher beer bottles in the various watering holes around the country). So, an update about SpiceJet seems to be in order.

Several important managerial changes have taken place. First, billionaire financier and investor Wilbur Ross sold his stake to Kalanithi Maran, promoter of Sun TV. Within a month, Sanjay Aggarwal, the CEO and an experienced hand in the industry, put in his papers. He was instrumental in turning around the fortunes of SpiceJet, and it will be tough to find a candidate that can fit his outsized shoes.

Last week, Ajay Singh, a promoter-director and Atul Sharma, a fellow director quit the board together – probably to pave the way for the Marans, who own 38% of the equity capital, to wrest total control.

Interestingly, while the Civil Aviation Ministry has approved the induction of Mr Maran and five of his relatives/associates to the SpiceJet board, there is still no news about when the open offer for an additional 20% will be made. Reminds me once again about the Golden Rule: those who have the gold, make the rules!

Now, a look at the one year bar chart pattern of SpiceJet:

In Oct ‘09, the stock had made two tops just above 42 and started to correct. It first dropped to the rising 20 day EMA, bounced up and then fell again to find support near the 50 day EMA. The OBV indicator was showing strong ‘accumulation’, and I had advised investors to buy on dips.

The stock made a low of 32, bounced up a bit, fell back to test the support from the 50 day EMA, then rose quickly on good volumes to touch a high of 49 on Nov 17 ‘09. It formed a ‘reversal day’ pattern and corrected down to the rising 20 day EMA.

Another volume spurt in early Dec ‘09 saw the stock break through the resistance of 49  – which then became a long-term support level as the stock entered an 8 months long sideways consolidation in a rectangular trading band between 49 and 64.

Such a long consolidation usually ends with a sharp break out. That happened on Aug 13, ‘10, backed by strong volumes and the stock rose almost vertically to hit a high of 79 on Aug 23, ‘10 – a gain of more than 100% in less than a year.

Note that during the long consolidation, the stock price came close to touching the rising 200 day EMA once during May ‘10, but remained above the long-term moving average throughout the past year. A clear sign of a bull market.

The RSI and the slow stochastic both entered their overbought zones as the stock touched the new high of 79. Neither of these two indicators seem to spend much time in overbought zones of the stock, so a correction was not surprising.

The ROC is positive. So is the MACD, which is touching the signal line. The slow stochastic dropped from the overbought zone, but remains above the 50% level. The RSI is still in the overbought zone.

If the correction continues, expect support at 69 (20 day EMA) and 64 (50 day EMA and upper end of the consolidation zone). The stock seems to be getting ready to test its Jan ‘08 high of 105.

Bottomline? The stock chart pattern of SpiceJet is in a strong bull market. Keep a trailing stop-loss and ride the bull. But remember that experienced airline hands have left the organisation. The new owners have political clout, which is great for wheeling and dealing but not so great for success in a complex and competitive industry which requires constant capital infusion, and globally doesn’t make much money.

Stock Chart Pattern - SpiceJet

Before starting the technical analysis of the stock chart pattern of SpiceJet (a reincarnation of ModiLuft), I need to clarify why I'm writing about a stock from the airline sector that is in perennial doldrums worldwide.

The airline industry in India has been a tale of missed opportunities, poor service, government intervention, over-estimation of passenger traffic, hubris of owners with little or no experience in the travel industry and mounting losses.

What attracted me to the SpiceJet stock? Firstly, it is a low-cost airline. In the USA - the 'mecca' of air travel - only low-cost airlines like JetBlue and SouthWest make any money.

Secondly, its Jun '09 (Q1) results. 21% growth in passengers, that led to a 15% growth in revenues and a Rs 26 Crore net profit, compared with a Rs 129 Crore loss in Q1 '08. (Jet Airways posted a loss of Rs 225 Crore in Q1 '09 against a profit of Rs 143 Crore in Q1 '08.)

Most importantly, the company has got financial backing from billionaire Wilbur Ross, who has invested about Rs 350 Crores that has given the company financial stability and provided relief from cash flow problems.

Needless to say, the stock price has reacted very favourably, as the 2 years bar chart pattern of SpiceJet will show:-

After making a high of Rs 100 in Jan '08, the stock dropped more than 90% during the bear market. A sideways consolidation, followed by a bull rally, took the stock to the Rs 28 level in early Jun '09, above the 200 day EMA.

A strong correction quickly brought the stock below both the 50 day and 200 day EMA, to the Rs 17 mark, when the news of the positive Q1 '09 results were declared.

A sharp rally on good volumes followed, as the stock entered a bull market, moving above the medium term and long term averages to Rs 43. It is facing some resistance at the 38.2% Fibonacci retracement level of the entire bear market fall.

Notice the bullish saucer pattern that the stock has formed. That means it can reach its previous high in the medium term, giving it a 100% upside target. Provided that the Q2 '09 results are not too disappointing. The monsoon months are not the best period for air travel.

The RSI has slipped below the overbought zone. So has the slow stochastic. The MACD is mildly positive and just above the signal line. The clincher is the OBV. After steady accumulation by smart investors, volumes have perked up strongly for the past month.

Bottomline? The stock chart pattern of SpiceJet indicates that there is plenty of upside left. But the fundamentals have a long way to improve to reach investment-worthy levels. This one is for investors with large risk appetites. Can be bought on dips with strict stop-loss.