The previous update of the chart pattern of OnMobile Global generated a fair amount of reader queries and comments, which implies that the stock finds a place in the portfolios of many small investors. Some bought at the IPO price of 440 during the previous bull market. Others entered at various lower levels, but have not really got much returns from the stock.
What is the reason for investor fascination with OnMobile? Is it because the company is in the high-tech field of telecomm software, and investors assumed that growth in telecomm subscribers would automatically lead to growth in the telecomm software field? Or, is it because one of the promoters is an ex-Infosys employee, and OnMobile was going to be the ‘next Infosys’?
The disappointing performance of the OnMobile stock has left many small investors bewildered. However, the company is backed by a strong balance sheet – unlike Bartronics or Cranes Software, which were also favourites of small investors. So, the likelihood of the company providing decent returns in the future is high. The overseas rollouts of the company’s software services (for Vodafone and Telefonica) have commenced. These should boost revenues and profitability.
But investors must appreciate that growth in telecomm subscribers does not necessarily translate into higher profits for telecomm software providers. The company provides discretionary value-added services, which users may not opt for. And, the ‘next Infosys’ is a myth.
What does the 2 years bar chart pattern of OnMobile Global tell us?
The stock has been in a down trend since touching a high of 682 back in Jul ‘09. A bear market was confirmed by the ‘death cross’ (marked by blue oval) of the 50 day EMA below the 200 day EMA in Nov ‘09. A bearish pattern of lower tops and lower bottoms continues. As per Dow Theory, the down trend remains in force till it is reversed.
Note that brief moves above the falling 200 day EMA in Jan ‘10, Sep-Oct ‘10 and earlier this month were met with selling. This is typical of bear markets where one is supposed to ‘sell the rises’. The rally from the Feb ‘11 low of 181 found resistance at the long-term support/resistance level of 310 and has dropped quickly to the next support/resistance level of 255.
The announcement of the 1:1 bonus issue on Mar 7 ‘11 (record date still to be decided) has not helped the bulls to loosen the bear hug on the stock so far. Is there a possibility of a trend reversal any time soon? The positive divergences in the technical indicators seem to suggest as much. All four reached higher tops while the stock made a lower top (marked by blue arrows). The stock may also be in the process of forming an inverse head-and-shoulders reversal pattern – with the left shoulder at the Nov ‘10 low of 226; the head at the Feb ‘11 low of 181; the right shoulder is still being formed; and the neckline at the 310 level.
Announcement of the record date for the bonus issue and good Q4 results can be the catalysts for the stock to reverse the down trend. Till then, one can expect the stock to consolidate between 255-310. The near-term technical indications are weak. The MACD is positive and just above its signal line, but has reversed direction. The ROC is also positive, but has dropped below its 10 day MA. The RSI has dropped from its overbought region, but is above the 50% level. The slow stochastic touched its overbought zone, only to fall below its 50% level.
Bottomline? The stock chart pattern of OnMobile Global is showing signs of reversing the down trend. Good volume support on up days is an indication that the bad days may be getting over. A high volume break out above 310 will be the first confirmation of a trend change, and a buying opportunity. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will confirm a bull market.
