S&P 500 and FTSE 100 charts (Dec 01 '17): one is overbought, the other is oversold

S&P 500 index chart pattern

The daily bar chart pattern of S&P 500 defied gravity by rising almost vertically to touch a new high of 2658 on Thu. Nov 30. Profit booking on Fri. Dec 1 dropped the stock to a test of support from its Tue. Nov 28 low of 2605.

Bulls bought the dip - a strategy they have been successfully following for the past 5 months. The index closed above the 2640 level, with a 1.5% gain on a weekly closing basis.

Daily technical indicators are showing signs of correcting overbought conditions. (The On-Balance Volume indicator - not shown - has been touching lower tops as the index moved higher. The negative divergence is a red flag for bulls.)

On longer term weekly chart (not shown), the index closed well above its three rising weekly EMAs in a long-term bull market. Weekly technical indicators are overbought. Slow stochastic touched a lower top and can trigger a correction to the rising 20 week EMA. 

FTSE 100 index chart pattern

The (purple) down trend line continues to dominate the daily bar chart pattern of FTSE 100. The index made another futile attempt to break off the bear shackles by moving above the down trend line to touch an intra-day high of 7470 on Tue. Nov 28.

Bears struck immediately. Over the next three trading sessions, the index plunged below its rising 200 day EMA into bear territory - closing at 7300 and losing 1.5% on a weekly closing basis.

On Sep 15 '17, the index had similarly plummeted below its 200 day EMA - only to pullback sharply. Will the pattern repeat this time around? 

Daily technical indicators are looking oversold, and showing downward momentum. However, Slow stochastic is showing positive divergence by not falling below its Nov '17 low.

For the past month, the index has formed a bearish pattern of 'lower tops, lower bottoms'. A possible technical pullback towards the 200 day EMA is likely to face bear selling. 

On longer term weekly chart (not shown), the index dropped to seek support from its 50 week EMA, and closed above its 200 week EMA in a long-term bull market. Weekly MACD is sliding below its signal line in bullish zone. RSI and Slow stochastic have slipped below their respective 50% levels.

BSE Sensex and NSE Nifty 50 Index Chart Patterns – Feb 18, ‘11

In last week’s analysis, I had expected a pull back rally based on the ‘reversal day’ pattern on both the Sensex and Nifty charts on Fri. Feb 11 ‘11. The following comments may be worth repeating:

‘An upward bounce is likely, but may find resistance from the first support zone and the falling 20 day EMA. In case the Sensex manages to move up further, the 200 day EMA will be a tougher resistance to overcome.’

BSE Sensex Index Chart

As if on cue, the Sensex started a pull back rally that found resistance from the falling 20 day EMA on Tue. Feb 15 ‘11 and Wed. Feb 16 ‘11; moved up further to the top edge of the support zone at 18500 on Thu. Feb 17 ‘11; and, in today’s (Feb 18 ‘11) trading, crossed above the support zone intra-day, found strong resistance from the 200 day EMA and fell back within the support zone.

Technically, the support zone was not breached. The Sensex failed to close above it. More worrisome for the bulls is the formation of another ‘reversal day’ pattern (higher high, lower close) on the chart, backed by good volumes. The short pull back rally seems over. What next?

There could be a bit of consolidation within the support zone before the down move starts in earnest. The MACD has crossed above its signal line, but remains negative. The ROC is above its 10 day MA, and is trying to stay in positive territory. The RSI has turned down after reaching the 50% level. The slow stochastic is touching the edge of its overbought zone.

The ROC, RSI and slow stochastic have reached higher tops while the Sensex made a lower top. The positive divergences may enthuse the bulls. The ‘death cross’ has also been averted for the time being. But this is probably a better time to sell or stay away. A test of the 17500 level, and even of the previous low around 16000, are well within the realms of possibilities.

NSE Nifty 50 Index Chart

An interesting picture emerges by including the OBV indicator instead of the MACD in the Nifty 50 chart. The correction in the Nifty 50 began after the index hit its peak of 6338 in Nov ‘10. But the OBV hit its peak in Oct ‘10, and has since been making a pattern of lower tops and bottoms – a sign of distribution. Even during the Dec ‘10 rally, the Nifty 50 made a higher top but the OBV made a lower one. A clear sign of smart money moving out.

The FIIs will continue to book profits and redeploy in their home markets, as well as other emerging markets where valuations look more reasonable. There are signs of inflation in the US and in Europe. That means the economic recovery is beginning to gain momentum. As long as the valuation gap remains, the FIIs won’t resume buying in a big way.

Inflation has started to moderate in India – partly due to the base effect. The monetary tightening by the RBI is also cooling things down. Investors should not have high hopes from the budget. Q4 results of India Inc. may show a reduction in profit margins. Till interest rates flatten out and start going down, buying stocks may not be a smart move.

Bottomline? The corrections in the chart patterns of the BSE Sensex and NSE Nifty 50 indices continue. Periodic rallies will only encourage the bears to sell more. Playing a waiting game could provide better value buys over the next few months.

Stock Chart Pattern: Akzo Nobel India (ICI India) – An Update

More than a year back (in Sep ‘09), I had analysed the chart pattern of ICI India – now renamed Akzo Nobel India. The stock had just broken above the resistance of the 550 level, after consolidating in a bullish ascending triangle pattern. The resistance level then turned into a support level for the next couple of months.

Dutch multinational Akzo Nobel, a world leader in specialty chemicals and coatings, bought ICI UK’s paints business two years back and became the new owners of ICI India. They took their time in consolidating the Indian business by selling off the remaining non-core subsidiaries and businesses. Only the starch business still remains.

The end result? A pure paints company, debt free with a cash kitty of nearly Rs 1000 Crores, ready to expand, acquire and take on the big boys like Asian Paints, Kansai Nerolac and Berger Paints.

The market has become aware that this former diversified subsidiary of a UK company with assorted unrelated businesses is about to transform itself into a growth-oriented and focussed paints and coatings company that can benefit from India’s infrastructure growth story.

Let us have a look at the 13 months bar chart pattern of Akzo Nobel India (formerly ICI India) and find out how the stock has fared, and what lies ahead:

The stock consolidated in a sideways band between 550 and 600 before breaking out in mid-Dec ‘09, and moved up to touch a high of 680 on Jan 22 ‘10.

Nothing much happened during the next four months, as the stock declined slowly down to the support of the 200 day EMA. While the MACD, RSI and slow stochastic drifted down with the stock, the OBV remained flat. The positive divergence gave a hint that accumulation was going on. Note the volume spikes while the stock was oscillating in the narrow space between the falling 20 day EMA and the flat 200 day EMA.

The inevitable happened in Jun ‘10. The Akzo Nobel India stock rose sharply from a low of 570 to 750, and then started a rally that culminated at the all-time high of 970 on Sep 21 ‘10. A gain of 70% in 4 months. There may not be a better example of the benefits of holding a fundamentally strong stock for the long-term.

Note that the MACD, RSI and slow stochastic made lower tops as the stock moved higher from Jun ‘10 to Sep ‘10. The negative divergences has caused a month-long bout of profit booking. The stock hit a low of 845 on Oct 18 ‘10 retracing 31% of the 400 points rise, and has dropped below the 50 day EMA. The 20 day EMA is about to do likewise.

The technical indicators are suggesting that the stock is oversold. The MACD is below the signal line and falling in negative territory. The space between the two lines is widening. The RSI and slow stochastic have both entered oversold zones. The slow stochastic can remain in the oversold zone for a while, but the RSI rarely spends much time in oversold territory.

But the most interesting is the OBV. It has remained flat while the stock fell from 970 to 845. Smart money is accumulating the stock, and the next price spurt could reach 4 digit territory.

Bottomline? The stock chart pattern of Akzo Nobel India (formerly ICI India) is taking a break in the midst of a major up move. Existing holders can remain invested with a stop-loss at 750. A drop below 845 can be used to add/enter. With reserves exceeding 25 times the equity capital of Rs 37 Crores, a bonus issue will not be surprising.

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.

NSE Nifty Index Chart Pattern – Sep 24, ‘10

Regular readers may be surprised by the title of this post. I have never written about the NSE Nifty 50 chart pattern for two main reasons:

1. For reasons best known to NSE authorities, the day’s opening level is taken to be the same as the previous day’s closing level; in other words, any upward or downward gaps at opening are not considered at all. Without ‘gap’ analysis – which forms an integral part of technical analysis - it is difficult to set upward or downward targets and figure out support and resistance levels.
2. My friend Nishit writes about the Nifty chart pattern on his blog regularly, and I didn’t see any point in duplication of efforts.

Of late, I have received several requests from readers to analyse the Nifty chart pattern in a similar way that I analyse the BSE Sensex index. With heightened interest and activity in the stock market as the indices approach their all time highs, it would be unfair on my part to ignore reader demands. After all, the blog is meant for readers’ benefit.

So, here is my maiden attempt at analysing the one year bar chart pattern of the NSE Nifty index:

The index had been consolidating in a slightly upward sloping channel with a width of about 600 points for the past one year, till it broke out on Sep 6, ‘10. Such a long consolidation period is invariably followed by a strong break-out in the direction of the index prior to entering the consolidation zone. In this case – upwards.

The minimum upward target for the breakout is the width of the trading channel added to the break out point. In this case, it is about 6150 (= 5550+600). This week, the Nifty has consolidated in a narrow rectangular band of 105 points (between 5932 and 6037).

Such narrow bands don’t give clear indications of the next move. It can go in either direction. Even an upward break out from this narrow band can be followed by a pullback. The Nifty is about 5% below the all-time high of 6357. It is better to be cautious near an all-time high – in spite of the fact that the FIIs don’t seem to be cautious at all.

They weren’t cautious in late 2007 either, and we all know how that played out! I’m not saying there will be a repeat performance of 2008. I believe in India’s growth story as much as the FIIs do – notwithstanding the sorry mess created by a few utterly incompetent and corrupt people ruining the Commonwealth Games preparations at Delhi.

But there are very good reasons for being cautious. Check the volume bars. In Jan ‘10, when the Nifty was at 5300 level, volumes were much stronger. The upward break-out earlier this month from the consolidation channel should have been on significantly higher volumes.

The Nifty is looking quite overbought. All three EMAs are rising and moving away from each other. The MACD is rising in positive territory and has created a big gap with its signal line. That could be the prelude to a dip. The OBV is tracking the index – no divergences. The RSI and slow stochastic are both in their overbought zones. The concern is the RSI, which rarely spends much time in overbought territory.

The bigger concern is the food inflation – which just refuses to go down. First, the excuse was last year’s poor monsoons. Then we heard that the base effect would kick in and inflation rate will drop. It didn’t. Now, the excuse is the floods in north India!

With the relentless flow of liquidity from the FIIs showing no signs of abating, inflation control may require further hikes in interest rates. The bunching together of IPOs has also started draining money away from the secondary market.

Bull markets are supposed to overcome a wall of worry – and that is what is happening right now, with retail participation at low levels. But bull markets are sustained by the occasional sharp corrections to restore the health and balance of the market. Without a nice dose of correction, attaining much higher levels above the all-time high will be difficult.

Bottomline? The chart pattern of the NSE Nifty index took a rest this week after reaching the 6000 level. A break below the week’s low of 5932 can take the Nifty down to the 20 day EMA at 5800 or the 50 day EMA and the top of the consolidation range at 5600. On the up side, the target remains the previous all-time high of 6357. Hold on to your existing portfolio with trailing stop-losses. Book partial profits to reallocate assets. Further buying should be done only on a correction of 10-15%.

Stock Chart Pattern - Ratnamani Metals and Tubes (An Update)

In my previous analysis of the stock chart pattern of Ratnamani Metals and Tubes back in Dec ‘09, it was observed that the OBV was moving up while the stock was correcting after touching a high of 118 in Sept ‘09. That was an indication of ‘accumulation’. However, the RSI and slow stochastic were indicating bearishness.

On the longer term charts, the stock was struggling to recover after a huge bear market fall from a high of 302 in Jan ‘08 (adjusted for a 5:1 stock split) to a low of 32 in Mar ‘09. Small cap stocks rarely recover from such a large fall of almost 90%. The fundamentals of the company looked good, but I had clearly mentioned that it was a high risk bet that could touch 150 if it cleared the high of 118.

With the Sensex climbing to new highs, very close to its all time high of 21200, it is an appropriate time to check how this small-cap stock has fared. The one year bar chart pattern of Ratnamani Metals and Tubes reveals that things haven’t gone too well:

The stock moved up to touch an intra-day high of 121 in Jan ‘10 – which was within the 3% ‘whipsaw’ leeway of the Sep ‘09 high of 118. Note how the stock dropped right back to 95. There could not be a better example of the reason why the 3% technical leeway should be used to confirm any breach of a previous top (or bottom).

The stock chart formed a nice cup-and-handle continuation pattern over the next four months and finally broke above the 121 level on decent volumes in Apr ‘10. Note how the OBV remained flat initially and then started to move up when the ‘cup’ was being formed. More sign of accumulation.

After reaching a high of 135, the stock corrected down to 114 and then started a steady climb upwards from Jun-Aug ‘10, using the 20 day EMA as a ramp. It recently touched an intra-day and 52 week high of 148.55 – close enough to the target of 150 mentioned in my earlier post.

Note that while the Sensex has been moving up after breaking out above a year long trading range, mid-cap and small-cap stocks have been facing selling pressure. No wonder, the Ratnamani Metals stock price has corrected sharply down to the 20 day EMA. At its recent high of 148.55, the stock retraced only 43% of its bear market fall.

The 50% Fibonacci retracement level of the bear market fall is at 167. That hurdle needs to be crossed for the stock to re-enter a bull market – even though it is trading above the three rising EMAs. The slow stochastic has dropped below the 50% level and the RSI is about to follow suit. The stock may correct some more before it resumes its up move.

Fundamentally, things weren’t so good last year. Sales dropped by 10% in FY ‘10 though profits were maintained. Cash flow from operation turned negative. Debt burden has increased but remains within manageable limits. Promoter holding is now 57%. It was 60% when I looked at the stock in Dec ‘09. FII holding has gone up from 1% to 5%. The stock is available at a P/E of less than 8, and can be looked at on dips for accumulation.

Bottomline? The stock chart pattern of Ratnamani Metals and Tubes almost attained the first target of 150. The next target is 180. The stock isn’t my favourite in the pipes and tubes space, and remains a high risk bet.

Stock Chart Pattern - Indian Hotels (An Update)

The previous look at the stock chart pattern of Indian Hotels back in June '09 didn't seem particularly exciting for would-be investors in this leading company of the Indian hotels sector.

Why? Because the bull rally from the Mar '09 low was showing signs of fizzling out, consolidating at the 65-66 level after touching a high of 80. I had recommended that it was a good entry point for patient investors.

The woes of the hotels sector still continues, as occupancy rates and average room rates (ARRs) have not recovered to a great extent following the global economic downturn. Large capacity addition in the hotels sector is also likely to contribute to depressed ARRs.

The high-end properties of Indian Hotels depend a lot on big spending overseas business visitors and tourists. The flagship Taj Hotel that bore the brunt of the Nov '08 terrorist attack is yet to be fully operational. International properties of the largest Indian hotel chain are also not doing great. This led to disappointing Q3 '09 results.

The company is trying to de-risk its business model by concentrating on the more reasonably priced Ginger brand, and by doing away with the Residency brand. The newer Vivanta brand has been positioned in-between the Taj and the Gateway brands.

The current capacity of around 11500 rooms will be increased to 20000 rooms by financial year 2011. The number of Taj Safari jungle lodges (currently 4 - all in Madhya Pradesh) will be increased to 10 across the country. That should contribute to an increase in revenues and profits in the next couple of years.

A look at the 2 years bar chart pattern of Indian Hotels clearly shows that smart investors have been accumulating the stock:-

The stock chart consolidated in a triangle pattern between Jun '09 and Sept '09 before an upward break out on good volumes took it to a high of 110 in Jan '10. Why did it halt at 110? No prizes for correct guesses. It happens to be the 50% Fibonacci retracement level of the entire bear market fall from 180 to 35.

A correction ensued as the stock dropped to make two intra-day bottoms at 85 - below both the 20 day and 50 day EMAs. Note that both the MACD and RSI made lower tops as the stock hit a higher one. Negative divergences like these can be a signal for a correction - it happened in this case, but it may not happen always.

The double-bottom has led to a resumption of the up move that has taken the stock close to its Jan '10 high. If it can move above 110, it is likely to face resistance at 120 - the May '08 high. The 61.8% Fibonacci retracement level of the bear market fall is at 125.

The OBV indicator shows that there has been buying interest even during the correction in Jan '10. Those investors who heeded my advice to enter the stock at 65-66 and are still holding, can book partial profits if the stock hesitates near the 110-125 band. Long-term investors can keep a stop-loss at 100 and stay long. Any dips can be used to add to the holdings.

Bottomline? The stock chart pattern of Indian Hotels has risen steadily if not spectacularly. Crossing 125 convincingly will be the first indication that things are getting better. Full recovery in the fundamentals is still a year or two away. Patient investors will get their due rewards by holding on.

Stock Chart Pattern - Voltas Ltd (An Update)

My previous look at the stock chart pattern of Voltas Ltd was back in June 2009. The stock of this fundamentally strong infrastructure company from the Tata group had a one way ride from the low of 31 in Mar '09 to a high of 146 in Jun '09 and was pausing to catch its breath at 122.

The technical indicators were hinting at a further correction down to the 90-100 zone, which could have provided a decent entry point for new investors who had missed the first part of the rally. It is time for an update, so let us have a look at the 1 year bar chart pattern of Voltas Ltd:-

The very next day (Jun 18 '09) after I wrote about the stock, it dropped to a low of 107, recovered and then tested the low by falling again to 109 on Jul 6 '09. That is the lowest price it has seen since, as it steadily moved up to make a high of 190 on Jan 20 '10.

A sharp correction took the stock down to the 150 mark, where it received strong support from a long-term support-resistance zone (145-150). A couple more tests of the support was followed by a sideways consolidation from which it has broken out upwards this week to touch a high of 180.

The 20 day EMA has moved above the 50 day EMA after spending a few days below it. The 200 day EMA is moving up nicely. The OBV remained pretty flat during the recent correction. The MACD has re-entered positive territory and is above the signal line. The RSI is rising above the 50% level. The technical indicators are hinting at a test of the recent high.

In the longer term 3 years chart, the stock made a mountain-like pattern from which most small and mid-cap stocks face a tough time in recovering:-

From the high of 267 made in Dec '07, the stock dropped a massive 88% to the low of 31 in Mar '09. The subsequent recovery to 190 in Jan '10 has already retraced 67% of the entire bear market fall.

The 61.8% Fibonacci retracement level of the entire bear market fall is at 146. Isn't it amazing that the stock had reacted exactly from this level back in June '09, and failed to clear that level convincingly till Aug 25 '09? No wonder in technical parlance the 0.618 ratio is some times called the 'golden ratio'.

Valuation wise the current stock price does not leave much in terms of 'margin of safety'. The Dec '09 quarterly result was nothing to write home about - both sales and profits were down quarter-on-quarter. But this conservatively managed company will surely return back to the growth path in the near future.

Bottomline? The stock chart pattern of Voltas Ltd is showing resilience at the 150 level. Existing holders can place a stop-loss at 150 and remain long. New entrants can use any dips to the 150 level to enter, with a tighter stop-loss. Those who are stuck in debt-ridden, operating cash flow negative stocks, like Punj Lloyd, can make a switch.

Stock Chart Pattern - Bartronics India (An Update)

The reason for analysing the stock chart pattern of Bartronics India back in June 2009 was not because this small investors' and brokers' favourite was looking like a 'good buy'. It was to suggest to existing holders that it was time to say 'good bye' to the stock.

Why? The company is in a supposedly high-tech field with great growth opportunities. Technically also, the chart was looking impressive. But one look at the fundamentals painted a completely different picture. It supports my oft-repeated refrain that a stock should be bought only when the technicals and fundamentals are indicating a 'buy'.

The cash flow from operations for year ended Mar '09 improved considerably over the previous year, but still remained negative. Which means, the 10% dividend and the tax on 'profits' were paid out of borrowed money. No wonder the debt to equity ratio increased from 1.3 to 1.8 and financial expenses zoomed more than 5 fold from Rs 4 Crores to Rs 22 Crores.

That dented the NPM from 17.8% to 12.8%. Prudent management would not have declared a dividend on such worsening financials. May be it was an effort to improve sentiment and keep the stock price high. Guess what? It didn't work.

The 2 years bar chart pattern of Bartronics India shows that the stock has gone nowhere:-

Nine months back, the stock had closed at 165. Today it closed at 150. In between, it peaked at 194 in July 2009, made a trough at 130 in Nov 2009 and fluctuated within the 130-194 band.

The stock has sought support from the 200 day EMA several times and both the MACD (which is in the negative zone) and the RSI (which is below the 50% level) are showing weakness.

Only the OBV is showing positive divergence - moving up while the stock moved sideways. But looks can deceive. What looks like 'accumulation' is actually 'distribution'. Why? A look at the shareholding pattern will reveal all.

The Indian promoters (27% holding) and the FIIs (6% holding) have been reducing their holdings while the general public, which now holds a whopping 45% of the steadily rising equity capital, have increased their share over the previous two quarters. No better example of stocks moving from strong hands to weaker ones.

Bottomline? The stock chart pattern of Bartronics India and the fundamentals are looking quite weak. Get out before it is too late. Die-hard hopefuls should note the strong resistance zone between 180 and 195. Only a cross above the zone can take the stock to a new high.

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 - IRB Infrastructure (An Update)

The stock chart pattern of IRB Infrastructure had made a classic bullish double-bottom pattern when I had taken a look at it in the beginning of June last year. Based on the double-bottom pattern, I had indicated a minimum target of 229.

It is time for an update. Let us have a look at the 9 months bar chart pattern of IRB Infrastructure:-

The stock hit 161 on Jun 5 '09 and immediately dropped to 125. That level provided good support and the stock resumed its upward climb on growing volumes, as indicated by the OBV.

The stock made a high of 227 on Aug 27 '09 - almost meeting the minimum target mentioned within a short span of 3 months - before going into a 5 weeks long sideways consolidation between 200 and 220.

It broke upwards on decent volumes on Oct 6 '09 and eventually went on to make a high of 280 on Nov 19 '09. A corrective move saw the stock make a low of 233 on Dec 18 '09. A high volume breakout on Jan 8 '10 saw the IRB stock make another high at 280 on Jan 14 '10.

The chart pattern thus formed a bearish 'double-top' and it is no wonder that the stock once again entered a corrective phase. If you had entered at lower levels, this would be a good time to book partial profits. The minimum downside target from the double-top is 186.

The bulls are still in control as the stock price is just above the 20 day and 50 day EMAs and well above the 200 day EMA. The MACD is barely positive. The RSI is slightly above the 50% level.

The company is apparently doing quite well and year-end Mar '10 should see a sharp increase in profits as road toll revenues from completed BOT projects start to kick in. High promoter holding and negligible public float could lead to wide price fluctuations.

Bottomline? The stock chart pattern of IRB Infrastructure is showing some tiredness after an excellent rally. Taking some profits home is never a bad idea, particularly when the stock appears to have run ahead of its valuations.

Stock Chart Pattern - IFCI Ltd (An Update)

My previous look at the stock chart pattern of IFCI Ltd was in the last week of May '09. This trader's favourite stock had risen sharply to 50, where I had expected some resistance. After a brief consolidation in a triangle pattern, the stock spurted to 60, where it ran into longer term resistance from the May-Jun '08 highs.

The one year bar chart of IFCI Ltd has since formed a very interesting bullish pattern:-

The stock corrected to 46 on Jun 9 '09. A 4 weeks sideways consolidation between 48 and 56 followed, after which there was a rapid fall to 37. A 'V' shaped recovery and a gradual rise afterwards took the stock back to test its earlier high in Sep '09.

Several attempts to break the resistance at 60 was met with profit booking and the stock corrected down and made a higher low of 41 in Nov '09, where it received good support from the 200 day EMA.

Another upward rally took the stock back to 60 on Jan 8 '10. More profit booking caused a drop towards the long-term moving average. Once again, the stock received good support at the 200 day EMA and made a higher low of 46.

At today's close, the IFCI stock has given precisely zero returns in more than 8 months since my previous post. So why am I discussing about this stock?

It is because of the bullish 'ascending triangle' pattern being formed (with a flat top at 60 and an upward sloping trend line connecting the higher lows). A break out can take the stock to 70, and even higher.

That is not the only reason for being bullish. Notice the higher volumes on up days that has caused the OBV to keep moving higher even as the stock has hardly gained anything. That is a sign of 'accumulation'.

The MACD is marginally negative and below the signal line. The RSI is below the 50% level. The 20 day EMA is below the 50 day EMA. All these indicate short-term bearishness, which could lead to another drop to the 200 day EMA.

Bottomline? The stock chart pattern of IFCI Ltd is showing some weakness. This counter is not for the faint of heart and is strictly for speculation. If you want to take a punt on some sort of a restructuring of its business in the near future, use any falls to enter. Serious investors should stay miles away.

Stock Chart Pattern - Maharashtra Seamless (An Update)

The stock chart pattern of Maharashtra Seamless was looking overbought when I had looked at it in May '09, just after the election results were declared. I had advised medium-term investors to await a possible correction to the 200-220 level before entering this cash rich, low debt, fundamentally strong company.

Let us have a look at the 9 months bar chart pattern of Maharashtra Seamless to see how investors who entered the stock may have fared:-

Instead of correcting in May '09, the stock consolidated in a flag-like pattern between 230-260 before another sharp up move took it to 325 on Jun 4 '09. A 5 weeks long correction brought the stock down to the 230 level - below the 50 day EMA.

A steady up move followed as the stock received good support from the 50 day EMA as it moved all the way to a high of 393 on Jan 18 '10. The stock faced strong headwinds and dipped more than 15% to 332 - below the 50 day EMA again - on Jan 29 '10. It is currently attempting a pull back.

In the longer-term chart (above), the stock had made a very bearish triple-top pattern - 675 in Jul '07, 672 in Sep '07 and 660 in Jan '08 - before collapsing in a heap to a low of 112 in Mar '09. The fall of 563 points from 675 to 112 was a huge 83% drop.

Is there any reason why the stock faced corrective moves when it reached 325 and 393? Regular readers of my technical analysis of chart patterns should not have any difficulty in answering that question.

If you are new to technical analysis, 325 and 393 are almost exactly the 38.2% and 50% Fibonacci retracement levels of the 563 points fall from the top. Here is why: (112 + 563 x 0.382 = 327); and (112 + 563 x 0.5 = 393.5). Those levels tend to act as resistance levels.

So, what should investors do now? The prudent ones may like to wait till the stock convincingly clears 393 before entering. They can also wait for a correction down to the 200 day EMA (at 300).

Note the interesting pattern of the OBV indicator. It has not fallen during the recent (and earlier) corrections and continues to move up - a sign of accumulation by knowledgeable investors. The MACD is in negative territory and below the signal line, but is attempting to move up. The RSI fell below the 50% level but has turned back upwards.

Bottomline? The stock chart pattern of Maharashtra Seamless is looking bullish. On crossing 393, it can move up to 460. On the down side, expect support in the 260-300 zone. This is a good mid-cap stock for long-term portfolios.

Stock Chart Pattern - Hindustan Unilever (An Update)

When I analysed the stock chart pattern of Hindustan Unilever more than 8 months ago, this was one of my comments:-

'If you want to preserve your capital during vicious bear attacks and like steady returns from tax-free dividends, there are very few stocks that can match HUL. This is not a stock for day traders. But there are plenty of opportunities for longer term trading.'

Now that the world indices are facing a co-ordinated bear attack by the FIIs, it may be a good time for a re-look at one of the favourite defensive stocks of all time.

Let us peruse the 9 months bar chart pattern of Hindustan Unilever (HUL) to check how the stock chart has played out since May '09:-

The stock peaked at 306 in Jul '09 on high volumes, but a 'reversal day' formation ended with a 3 weeks long sharp correction to 248 in Aug '09, where it got good support from the 200 day EMA. The stock subsequently made lower tops of 295 in Oct '09 and 288 in Nov '09 before sliding down below the 200 day EMA, which is very bearish.

But technical analysis requires verification from several other indicators for a confirmation. Look at the On-balance Volume (OBV). While the stock was making lower tops in Oct and Nov '09, the OBV was making higher ones - a positive divergence.

Even though the stock dropped below the 200 day EMA, it made a higher bottom of 252 last Friday, Jan 22 '10 and is trying to move up above the long-term moving average.  Note that after falling below the 50 day EMA, the 20 day EMA is resting on the 200 day EMA.

The RSI bounced off the oversold zone and reached the 50% level before dipping down. The OBV has been moving sideways with an upward bias as the stock corrected for the past two months. The MACD is in negative territory, but has given a bullish cross above its signal line.

Are you all confused with the conflicting bullish and bearish signals? Time to take a look at a longer term chart - a 3 years closing chart pattern of HUL which gives a completely different picture:-

Now you know why I keep harping about long-term investing! The bull rally in the HUL stock that started in 2007, and progressed upwards right through the bear market in 2008, remains in tact.

The last 2 months' corrective move has merely brought the stock down towards the lower end of the upward trending channel (which can be drawn by connecting the tops and bottoms of the 3 years chart pattern) - giving an opportunity to enter.

Bottomline? With the Sensex undergoing a much needed correction, the HUL stock chart pattern looks poised for another rise within its bullish up-trend channel. Existing investors should hold on. New entrants can expect a 25% gain in the near term - but remember to maintain a tight stop-loss.

Stock Chart Pattern - Balrampur Chini (An Update)

During my previous look at the stock chart pattern of Balrampur Chini, the stock had jumped up from the Mar '09 low of 42 and had nearly doubled in value by early May '09. I had expected the stock to face some profit booking after the rapid rise.

The stock consolidated in a triangle pattern instead of correcting, and after the election results embarked on a steady northward journey with occasional dips. The bull rally finally terminated with a key reversal day on Oct 30 '09, as the stock hit a higher high of 167 and a lower close of 149.

The spectacular 450% rise from the low of 30 made in Dec '08 still fell short of the high of 205 made on Apr '06. Let us take a look at the 9 months bar chart pattern of Balrampur Chini to see what transpired next:-

 

The reversal day pattern stopped the bull rally on its tracks and the stock has been drifting sideways with a downward bias since then. The 20 day EMA is resting on the 50 day EMA and the stock has moved below both the short and medium term moving averages.

The stock had recovered well in Dec '09 when the 20 day EMA had moved down to touch the 50 day EMA, but made a lower top. If it moves below 120, a bearish pattern of lower tops and lower bottoms will get formed.

There is a possibility that the 200 day EMA will provide support to the stock. Even if it does, and the stock manages to move up again, a bearish descending triangle pattern will start forming.

The OBV seems to be tracking the stock's movements, as it is supposed to do. But the MACD has moved into the negative zone and has gone below the signal line. The RSI is below the 50% level and rapidly moving towards the oversold zone. Looks like the wind has gone out of the stock's sails.

What has caused the bearishness? Technical analysis alone can't explain it. This is another instance of why both technical and fundamental analysis need to be considered for buy-sell decisions.

The Saraogi family of Calcutta that owns 36.5% of the equity and runs the show at Balrampur Chini seem to have had enough and have been trying to sell the company. In Nov '09, Bajaj Hindustan balked at the Rs 180 per share (of face value Re 1) price. In Dec '09, an attempt by Shree Renuka Sugar to take over the company came to nought.

The other reason for lack of investor interest could be the likely bulk import of sugar by the Government to ease the shortage situation. That would help curtail the runaway sugar prices and dent the profits of sugar manufacturers.

Bottomline? The stock chart pattern of Balrampur Chini shows a distinct dampening of bullish fervour. Existing holders may stay invested with a strict stop-loss at 115, with the hope that a white knight will appear on the scene soon. The risk-averse can book profits. Fresh entry is not recommended.

Stock Chart Pattern - Thermax Ltd.

The one year bar chart pattern of Thermax Ltd. shows a sharp rise between Mar '09 and May '09, followed by a steady rise that took the stock from a low of 151 in Mar '09 to the recent high of 650 in Nov '09 - a spectacular 330% rise for this mid-cap energy and environment company.

The stock had made a high of 968 back in Oct '07 from where it fell steeply by 84% to the low of 151 in Dec '08. The impressive rise during the year has retraced 61.1% of the entire bear market fall.

It is quite interesting how the Fibonacci retracement level of 61.8% (656 in this case) has proved to be a strong resistance level for the Thermax Ltd. stock. There has been four attempts in the last 2 months to cross the level, and each time the bears managed to stop the bull rampage.

That is not the only point of concern. In the 2 year charts, there is a resistance zone between 650-700 that the stock needs to cross decisively. The negative divergences in the MACD and RSI are also evident. The stock has been correcting soon after the RSI entered the overbought zone (which it is about to do again).

The stock has received good support from the 50 day EMA during recent corrections, and there is no reason to believe that any correction will be deeper. In case the stock corrects more, the zone between the 450 level and the 200 day EMA should provide stronger support.

All three EMAs are rising and the stock is above them. The OBV is also rising, indicating buying support. There is also a bullish 'ascending triangle' pattern forming. So the bull rally in the Thermax Ltd. stock is under no great threat.

A fundamentally strong, debt-free, regular dividend payer with positive cash flows from operations that has funded its expansion activities mostly from internal accruals - just the kind of well-managed company that should adorn the portfolio of long-term investors.

The company offers products and services in the field of power generation, environment protection and water management - all areas currently fancied by investors. No wonder this Rs 2 face-value stock is trading at a high P/E of 26.5 at today's closing price of 640.

Bottomline? The stock chart pattern of Thermax Ltd. shows that the bulls are in control. The time to add this stock was during Mar-Apr '09. New entrants should wait for a decent correction, as valuations are looking a bit stretched. Existing holders can book partial profits, but should stay invested.

(Thanks to readers 'VJ' and 'The Visitor' for suggesting this stock.)

Stock Chart Pattern - DLF Ltd. (An Update)

The previous look at the stock chart pattern of DLF Ltd. in Apr '09 had shown a nice saucer-like bottoming pattern after a near 90% fall from the top of 1225 on Jan 15 '08 to the bottom of 124 on Feb 4 '09.

The volumes were increasing as the stock struggled to cross the 250 level, after gaining 100% from the Feb '09 low. But I had concluded my analysis with the following comments:-

'If you haven't got rid of your DLF holding yet, you may get one more chance to do so. There is a possibility that this rally is taking a pause before trying to move higher again. But please do not harbour hopes about DLF reaching 1000 levels.'

Why and how did I arrive at that conclusion? Any stock that falls 90% from the top faces a lot of trouble getting back on its feet. When the stock belongs to an unreliable and unregulated sector which generates a large amount of 'black' money transactions, the chances of recovery are that much slimmer.

The last straw was the discovery of fraudulent profit booking by the company who were 'selling' to a subsidiary without getting any payment in return.

Let us take a look at the 9 months bar chart pattern of DLF Ltd.:-

There is something quite interesting at the left-most part of the DLF stock chart. Notice the consolidation during Apr-May '09 near the 250 mark as the OBV indicator kept rising. Then the massive volumes on a down day (May 13 '09).

Then, on the next four trading sessions, the stock jumped vertically upwards from a low of 222 on May 14 '09 to a high of 423 on May 19 '09. That was a great chance for existing holders to get out.

The stock did make a high of 491 as recently as Oct 21 '09, but that up move was not supported by the technical indicators. The OBV, MACD and RSI all moved sideways, and failed to make new tops.

The rise to 491 from the low of 124 retraced just 33.3% of the entire bear market fall, not even reaching the 38.2% Fibonacci retracement level. Technically, it means that the stock remains in a bear market.

The correction from the 52 week high has twice received support from the 200 day EMA - which is a small solace for the bulls.  The stock is struggling to clear the resistance from a falling 20 day EMA. The 50 day EMA is also falling.

The MACD is in negative zone and the RSI is below the 50% level, so expect the correction to continue.

Bottomline? The stock chart pattern of DLF Ltd. does not hold out much hope for the bulls. If you are still stuck at higher prices, continuing to hold may increase your losses. Investors should not go anywhere near this stock.

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.)

Stock Chart Pattern - Ratnamani Metals and Tubes

The stock chart pattern of Ratnamani Metals and Tubes had a spectacular run from a low of 32 on Mar 16 '09 to a high of 118 on Sep 16 '09 - gaining more than 250% in 6 months. The stock has subsequently been in a corrective mood.

Before getting into the nitty-gritty of the technicals, a few words about the fundamentals. A two-decade long presence in the stainless steel pipes and tubes segment; profit making and dividend paying, with positive cash flows from operations; low debt/equity ratio; low P/E; nearly 60% of the Rs 9 Crores equity held by the promoters; a recent order of Rs 150 Crores from GAIL; clients include IOC, HPCL, Reliance, BHEL.

All point to a stock that smart investors may want to include in their portfolio. Now let us see whether the one year stock chart pattern of Ratnamani Metals and Tubes is supporting the fundamentals or not:-

After hitting the recent high of 118, the stock has been in a sideways correction, well-supported by the 50 day EMA. Today's lower close has sent the slow stochastic tumbling into the oversold zone. The RSI has also dropped below the 50% level. Both indicators are suggesting a continuation of the correction.

The on-balance volume gives a completely different picture. For nearly three months, the stock has made a sequence of lower tops and bottoms. But the OBV is moving higher - a positive divergence and a clear indication of accumulation. So why am I not enthusiastically recommending a 'buy'?

Let us look at a more longer term chart pattern:-

The stock made a high of 302 on Jan 4 '08, from where it fell 89% to 32 in Mar 16 '09. Small cap stocks usually have trouble recovering from such a massive fall. At its recent high of 118, the stock retraced less than 32% of its entire fall of 270. Compare that with the Sensex, which retraced more than 70% of its bear market fall.

This is one of the reasons why investing in small cap stocks is so risky, and best avoided by small investors. The returns may be huge if you can enter at the early stages of a bull phase. But the fall in a bear phase can be soul-destroying.

Bottomline? Enter only if you have very high risk tolerance. If it can clear the recent high of 118, then it may reach 150 and even 180. If you like the pipes and tubes segment, there may be better opportunities elsewhere.

(Note: Thanks to reader Abhijit for suggesting this stock.)

Dow Jones (DJIA) index chart pattern - Nov 27, '09

The Dow Jones (DJIA) made another attempt to climb away from the important 10360 level, mentioned last week as the barrier to cross for the bull rally to sustain. In a holiday-shortened week, the Dow twice moved above the 10500 level, but Friday's profit booking brought the index down below the 10360 level. It finally closed marginally lower for the week.
The 6 months bar chart pattern of the Dow Jones (DJIA) index isn't looking that different from a week back:-

The bull rally on lower volumes continues as the bulls have managed to brush aside all efforts by the bears to bring the index down. All three EMAs are still moving up and the index is above them.

The technical indicators are looking slightly weaker. The slow stochastic is in the overbought zone, where the %K has moved slightly below the %D. The RSI moved down after touching the overbought zone. The MFI is above the 50% level but moving down. The MACD has moved down a bit and is touching the signal line.

So is it time for the bears to throw in the towel? As per this article, market sentiments are turning overly bullish, which could provide just the contrarian opportunity that the bears could try and exploit. Fundamentals are yet to catch up with a market that has been driven upwards by a flood of liquidity and dollar carry-trade.

Bottomline? The Dow Jones (DJIA) index chart pattern is maintaining the bullish sequence of higher tops and bottoms. Ride the rally, but keep booking partial profits.

(Note: At the time of writing this post, the Dow is marginally up but still below the 10360 level.)