Stock Chart Pattern - Reliance Capital Ltd.

For this week's stock chart pattern discussion, I've chosen Reliance Capital. Readers of this blog may be a bit surprised, since I've been quite outspoken about my abhorrence for the word 'Reliance'.

The reason will become apparent when we take a look at the 6 months bar chart pattern of Reliance Capital:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

The stock chart pattern of Reliance Capital seems to be lagging the Sensex chart pattern. It made a 52 week low in Nov '08, which was tested again in Dec '08. A 2 months sideways consolidation followed, after which the stock broke downwards and made a new 52 week low in Mar '09 along with most global markets.

The rally that followed first pierced the 20 day EMA from below; took support on it for a few sessions, then moved sharply up to pierce the 50 day EMA and is now taking support from it. The 50 day EMA has flattened and the 20 day EMA is moving upwards, but is still below the 50 day EMA.

Right through Mar '09 and in Apr '09 volumes have been expanding.  From the recent bottom at 274, the stock has jumped nearly 75% to touch 479.

The ROC and MACD are in the positive zones. The RSI is just below the overbought zone, and hesitating to go further up. The slow stochastics has entered the overbought zone. So, it looks like the  rally may continue for a bit more.

The down sides? The stock is well below the 200 day EMA, which means it is still in a long term bear phase. Though it has gone above the most recent top made in Feb '09, it is still below its Jan '09 high of around 625. Before it can reach there, the stock is likely to face resistance in the 490-500 zone.

Bottomline? Short term investors can enter the stock on the next dip, which can provide profits of about 50% (or 200 points). Why would a long term investor be interested in the Reliance Capital stock chart pattern? The reason is its 'hidden' assets. The mutual funds business alone has assets under management (AUM) of Rs 80,000 Crores - the largest mutual fund business in India. At a conservative valuation of 5-7% of AUM, the mutual funds business alone is worth Rs 5000 Crores. And I've not even talked about its rapidly growing insurance business, plus its stock broking, private equity, consumer finance and distribution of financial products businesses!

Bovespa (Brazil) Chart Pattern - Apr 6, 2009

Brazil's Bovespa chart pattern looks quite different from all the index chart patterns discussed so far. The only similarities are the Mar '09 rally, and the stock index being below the 200 day EMA, indicating a long term bear market.

The striking differences in the Bovespa 6 months closing chart pattern can be seen below:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

Most global indices made a 52 week low in Mar '09. Bovespa's Mar '09 low is almost 30% above its 52 week low made in Oct '08.

In Jan '09, the 20 day EMA moved up from below to touch the 50 day EMA. Thereafter, the 20 day EMA and 50 day EMA have been in a tight embrace while the Bovespa consolidated in a rectangular sideways pattern between the 38000 and 42000 levels - well above the Oct '08 52 week low and the higher Nov '08 low.

The global rally that started in Mar '09 culminated with the Bovespa moving above the rectangular sideways pattern on April 2, '09. But the 200 day EMA provided strong resistance. The volume has also fallen off the past couple of days.

The technical indicators - slow stochastics in the over bought zone, MACD, ROC, RSI in positve zones - are confirming the recent bullishness.

Bottomline? The overall chart pattern of the Bovespa is looking a lot stronger than the Dow and the Sensex.  But the resistance by the 200 day EMA and the volume drop off may be the first signs of the global bear market rally coming to an end soon.

Dow Jones Chart Pattern - Apr 3, 2009

In last week's discussion of the Dow Jones chart pattern, I had pointed out the similarities and differences with the Sensex chart pattern. This week's chart patterns of the Dow and Sensex have more similarities than differences. In fact, they almost look like carbon copies (remember those?) of each other.

A look at the Dow Jones 6 months closing chart pattern will make it clear:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

The similarities first. The slow stochastics is in the over bought zone, but looks like it wants to stay there awhile. MACD is positive. ROC and RSI indicators have reacted from over bought areas and have made lower highs, indicating 'divergence'. But overall, the indicators are confirming the bullish behaviour of the index.

But there are a few significant differences with the Sensex chart pattern. The recent Apr '09 high is still way below the Jan '09 high. Volume during the later part of the rally (that began in early Mar '09) is lower than that in the earlier part of the rally.

The 20 day EMA is turning upwards but is still below the 50 day EMA. (In the Sensex chart pattern discussed on Saturday, the 20 day EMA had crossed above the 50 day EMA.)  So the Dow rally appears to be weaker than - and lagging - the Sensex rally.

Bottomline? For investors interested in the near term outlook of the Sensex, looking at the TSEC (Taiwan) and Hang Seng indices may give a better picture. The stock market technicals are beginning to reflect the fact that Asian economies are in a better shape than those of the USA and Europe.

CAC 40 (France) Chart Pattern - Apr 3, 2009

Last week I had discussed the FTSE chart pattern and how it was looking weaker than the Hang Seng and the Sensex. This week we will take a look at another Europen stock index, the CAC 40.

The 6 months closing chart pattern of the CAC 40 is also looking rather weak:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

Unlike many other global indices, the CAC 40 never quite entered a consolidation pattern, except for the month of Dec '08. It has been continuously making lower tops and bottoms, and made a 52 week low in early Mar '09 before joining the global market rally.

But the rally looks a lot weaker with the volume spurt missing.  The CAC 40 has pierced through the 20 day EMA and 50 day EMA from below and is trading above both EMAs. The 50 day EMA is beginning to flatten and the 20 day EMA is trying to move above it.

All the technical indicators - the slow stochastics, MACD, ROC and RSI - are looking positive. But like in the Sensex discussion yesterday, both the ROC and the RSI have made lower highs while the CAC 40 was making a new high. This 'divergence' is likely to check the upward rally in the near term.

Note that the closing level made on Apr 2, '09 is almost 400 points lower than the highest close made in Jan '09. Contrast this with the Sensex close of Apr 2, '09 which touched the Jan '09 closing level.

Bottomline? In a globalised economy, action in stock markets in one geographic zone invariably has a reaction in a different zone. But after looking at the weaker FTSE and CAC chart patterns, it is becoming apparent that the Sensex outlook will be clearer by looking at the chart patterns of Hang Seng and TSEC (Taiwan).

Sensex Chart Pattern - Week ending Apr 3, 2009

The Sensex chart pattern is beginning to look more bullish this week in tandem with most of the the global index chart patterns. After a sharp pullback on Monday, Mar 30, '09 the Sensex resumed its upward journey with renewed vigour.

The 6 months closing chart pattern of the Sensex is still lagging the chart pattern of the Taiwan index discussed yesterday:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

The 20 day EMA has now crossed above the 50 day EMA from below. and the Sensex is above both these EMAs and is rising. Volumes are supporting this rise, as are the number of advancing shares each day.

The ROC and RSI have moved down from over bought regions but are trying to go back up again. The MACD is in the positive zone. The slow stochastics is in the overbought zone and looks like it is quite comfortable in its surroundings.

So, with all technical indicators showing bullishness, is it all systems go for a further rise? May be, or may be not. There are three contra indications that need to be watched closely.

Firstly, the Sensex is still below its 200 day EMA and also below the upper level of 10950 of the rectangular consolidation chart pattern of the past 5 months. Technically, we are still in a long term bear market.

The more interesting thing to note are the ROC and RSI behaviours. While the Sensex had made a higher high at the end of the week, both the ROC and RSI have made lower highs. This is a 'divergence' in technical parlance, and indicates a possible correction in the offing.

Last, but not the least, the high made by the Sensex last week is almost the same as the high made in early Jan '09, when the Satyam scam hit the market. This could be a good enough reason for some profit booking in the coming week.

Though the fundamentals of the Indian economy have not improved much, the euphoria caused by the G20 announcement of creating a trillion dollar fund for the IMF to bestow on weak economies has had a sea change in sentiments.

When people feel that things are getting better, they start to spend and things do get better. So it is kind of self-fulfilling. Sentiment has a big role in the stock markets in the short run. No wonder global markets are charging up.

Eventually, the reality is going to bite. Regardless of how much money different governments print to charge up their economies, changes at the ground level will take time. A lot of cash swishing around will then boost inflation, which markets do not like.

Bottomline? My last week's concerns are still valid. But buying momentum can take the Sensex past the two resistance levels of 10950 and 11300. If you haven't bought during the sideways consolidation phase, do not buy now. You won't miss the bus. More buying opportunities will come.

TSEC (Taiwan) Chart Pattern - Apr 3, 2009

Last week, we had taken a look at the Hang Seng chart pattern, and it looked quite similar to the Sensex chart pattern. The Taiwan index chart pattern gives quite a different view.

Let us have a look at the TSEC 6 months closing chart pattern:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

After a sharp fall like most global indices, the TSEC jumped off its 52 week low in late Oct '08, but went down to a new 52 week low in Nov '08. It moved into a sideways consolidation for the next three months.

In the Mar '09 rally - in tandem with global markets - it has not only pulled out of the consolidation phase, but has made a clear 'rounding bottom' chart pattern on significantly higher volumes.

The TSEC has moved above the 20 day EMA and the 50 day EMA - both of which are moving up. This is a clear bullish sign. It is tantalisingly poised below the trend deciding 200 day EMA. My guess is that the 200 day EMA won't be able to stop the up move.

Why? Other than the EMAs and volume confirmation, the MACD, ROC and RSI are also showing bullish patterns. The slow stochastics is in the over bought zone, but a market can stay over bought for quite some time during a bull phase.

Bottomline? The TSEC chart pattern is clearly showing a trend change from bear market to bull market. A harbinger of what is to follow in the global markets?

Stock Chart Pattern - Hero Honda Ltd

While discussing the chart pattern of ICI India Ltd on Mar 4, '09, I had mentioned how the stock was proving resilient after hitting a low in Oct '08 by slowly making higher tops and bottoms. But it still remained in a bear phase - below the 200 day EMA.

If you look at the 1 year closing chart pattern of Hero Honda Ltd, it will warm the cockles of your heart:-

(Please right-click on the image above and open it in a new tab or window for a better view.)

After going below the still-rising 200 day EMA in June '08, Hero Honda made a 52 week low at around 630 in July '08. The Sensex and almost all the known stocks were in a steep fall at this stage and most made their 52 week lows around Oct 27, '08.

But Hero Honda entered a new bull phase! After sharply moving above the 20 day EMA, the 50 day EMA and the 200 day EMA, it fell back below the 200 day EMA in late Oct '08 - along with the rest of the market. But it made a higher low on the stock chart.

It stayed in a sideways consolidation pattern for most of Nov '08 before embarking on an unbridled bull run, which is getting stronger as time passes. There were two short corrective phases in between. One in Jan '09 was supported by the 200 day EMA. The one in Mar '09 was supported by the shorter term 20 day EMA.

From the Jan '09 corrective phase onwards, Hero Honda has remained above all the three EMAs - the 20 day, 50 day and 200 day - with the shorter term averages above the longer term ones. This is the clearest sign of a bull phase.

The only note of caution is that the Mar '09 rally in the rest of the stock market has propelled Hero Honda far above the 200 day EMA and all three EMAs are pointing sharply upwards. This is usually the sign of an imminent correction.

The slow stochastics, and ROC are trying to move down from over bought regions. The MACD is still going strong. But have a look at the RSI. It has made a lower top while the stock is making higher ones. This is a 'divergence' in technical terms and indicates the possibility of a correction soon.

In Hero Honda's case, the technicals seem to reflect the fundamentals. Two-wheeler sales are strong and growing, in spite of the fact that the parent Honda Motors of Japan is becoming an active competitor.

Bottomline? Hero Honda is one of the few index stocks that is in a bull phase. New investors may buy on dips. Existing investors should hang on tight and enjoy the ride.