Stock Chart Pattern - DLF Ltd. (An Update)

The previous detailed update to the technical analysis of the stock chart pattern of DLF Ltd. was posted more than two years back (date marked by the grey vertical line on the chart below). A further update since then had not been considered necessary because there wasn’t anything new to add to the following recommendations:

“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.” 

So, why take a re-look at the DLF Ltd. chart now? The motivation came from the considerable interest generated by a recent report published by a Canada-based equity research house that tore the company’s business practices and financial condition to shreds. That report was based on fundamental analysis. But technical signals had warned of the decimation in the stock’s price back in Oct-Nov ‘09.

The weekly bar chart pattern of DLF Ltd shows the steady fall from the 3 yr high of 491, touched in Oct ‘09. The stock fell almost 65% to its Jan ‘12 low of 173. But that pales in comparison to the 90% fall from its all-time high of 1225 touched on Jan 15 '08 to the bottom of 124 on Feb 4 '09.

The subsequent rally led to a 300% gain (from 124 to 491) but retraced only a third of its bear market fall – less than the Fibonacci retracement level of 38.2%. That means the entire gain from 124 to 491 was a bear market rally within the long-term bear market that started from Jan ‘08. Hence the call to investors not to go anywhere near the stock. Very few stocks manage to recover from a 90% fall.

Note that the stock price formed a ‘reversal week’ pattern (higher high, lower close) when it touched 491 in Oct ‘09. A ‘distribution week’ pattern (high near open, close near low on higher volumes) followed the next week. The stock price then entered a bearish ‘rising wedge’ pattern.

After the expected break below the ‘rising wedge’, the stock dropped to 251 in May ‘10 but formed a ‘reversal week’ pattern (lower low, higher close) that marked the end of the first phase of the down move. A counter-trend rally took the stock price above the 20 week and 50 week EMAs to a high of 397 in Oct ‘10. Again, a ‘reversal week’ pattern (higher high, lower close) marked the end of the intermediate rally.

The next leg of the down move dropped the stock to a low of 173 in Aug ‘11. A bounce saw the stock price reach a high of 251 in Nov ‘11 before falling back to test the low of 173 in Jan ‘12. A rally along with the broader market took the stock to a high of 261 in Feb ‘12, when another ‘reversal week’ pattern ended the brief rally. Note the negative divergences in three of the four technical indicators (marked by blue arrows) that warned of a correction, which started even before the adverse report hit the market.

The weekly technical indicators are turning bearish. If the stock breaches its recent low of 173, it can drop all the way to test its Feb ‘09 low of 124. If you are holding the stock, ask yourself: Why?

Bottomline? The stock chart pattern of DLF Ltd. is in a long-term bear market that started more than 4 years ago, and shows no sign of ending. After years of financial shenanigans and taking customers and investors for a ride, the chicken are coming home to roost. The company is desperately trying to sell-off assets to survive, but are finding few takers. The stock doesn’t deserve to be an index constituent. AVOID.

Chart Patterns of 10 Realty Sector stocks (an update)

If you have the money, buy realty, not realty sector company stocks. Why? Because most realty sector companies lack transparency, need lots of capital, have poor governance and a tendency to take buyers for a ride. Not to forget the nexus of local politicians and the underworld that usually leads to substandard quality of construction.

In the previous bull market, the sector was a favourite of big and small investors, and provided astounding returns to some. Those glory days are long gone, and unlikely to return. If you are stuck at higher levels, use the current rally to exit or switch.

In a previous post more than a year back, brief technicals of 10 realty sector stocks were presented. Not for suggesting investment, but to point out that even in a not-so-great sector, there are a few stocks that can swim against the tide. If you are enamoured by the real estate sector, pick those few exceptions.

Hubtown (Ackruti City)

A change of name and branding hasn’t changed the fortunes of Ackruti City – now known as Hubtown. The stock has provided no returns for the past year, and is technically still in a bear market. It is showing some signs of life, but the technical indicators are pointing to a correction from overbought condition.

Ashiana Housing

In complete contrast to the Ackruti City/Hubtown stock chart, the chart pattern of Ashian Housing is in an uptrend in a bull market, and touched a 52 week high last week. Note that the Dec ‘11 low, from which the current rally started, was actually a higher bottom than those touched in May ‘11 and Oct ‘11. Technical indicators are looking overbought, but looks like there is some steam left in the rally.

DLF Ltd

The big daddy of the real estate sector, DLF has provided almost zero returns over the past year and is trying to emerge from its 15 months long bear market. The stock dropped more than 50% from its Oct ‘10 peak, underperforming the Sensex, and is looking overbought.

DS Kulkarni

The stock traded within a rectangular band between 46 and 66 during the past year, before breaking out above the 66 level on a volume spurt last week. The stock price immediately pulled back to the 66 level, but the 50 day EMA crossed above the 200 day EMA indicating a possible return to a bull market.

Ganesh Housing

This was one of the better performing stocks in 2010, but suffered badly as the bears took their toll in 2011. The stock has given no returns during the past year and is technically still in a bear market, and the bearish pattern of lower tops and lower bottoms continues. The stock had shaved off 70% from its Oct ‘10 peak.

HCC

The Lavasa controversy nearly dropped the stock into single digits, as it fell 80% from its Jan ‘10 peak. The current sharp rally, backed by strong volumes, has caused a 100% jump from its Dec ‘11 low but the stock is technically still in a bear market. Technical indicators are signalling an overbought condition.

Omaxe

This is another stock that has been in a bull market, after forming three intra-day bottoms at 120. It has climbed above its previous intra-day high touched in Nov ‘10, and is trading above all three of its rising EMAs.

Purvankara

The stock is desperately trying to get out of a strong bear grip after providing negative returns over the past year. Technically, it is still in a bear market.

Unitech

This is one stock that tried to fly too high, like Icarus, and came crashing down to lose 80% from its Oct ‘10 peak. It provided negative returns over the past year and is still in a bear market technically.

Vijay Shanti Builders

A favourite stock of small investors, it lost more than 75% from its Jan ‘10 peak. The current rally has seen a spectacular parabolic rise, but the stock is looking extremely overbought.

Bottomline? The broader market rally from Dec ‘11 lows has propelled beaten down realty sector stocks above their 200 day EMAs, but that doesn’t mean their fundamentals have improved. Caveat emptor.

Which stocks are keeping the Sensex down?

The BSE Sensex index comprises 30 stocks. 16 of them are currently trading above their 200 day EMAs – indicating bull markets. 14 are trading below their 200 day EMAs, preventing the Sensex from reaching new highs.

Here are brief thumb sketches of the laggards:

BHEL: Bounced up sharply from a low of 1905, but found resistance from the 200 day EMA; currently trading just below the long-term moving average.

CIPLA: Touched a low of 286 before a sharp rally to 332 – above its 200 day EMA; now consolidating between the 50 and 200 day EMAs.

DLF: The rally from the low of 209 stopped well short of the falling 200 day EMA; the stock has dropped down to seek support from its 50 day EMA.

Hero Honda: The stock touched a low of 1378; a spirited rally was stalled at its falling 200 day EMA; the stock has started to drop towards its 50 day EMA.

HUL: The stock dropped below its 200 day EMA on Jan 27 ‘11; it has been trading sideways since then, alternately going above and below the long-term moving average.

Jaiprakash Assoc.: From a low of 70, the stock reached a high just short of the 100 mark but well below its falling 200 day EMA; it has dropped down to seek support from its 50 day EMA.

L&T: The stock is trading sideways in a narrow range, just above its 50 day EMA but well below its falling 200 day EMA.

Maruti: Trading below the 200 day EMA for the past three months, the stock had a day’s close above the long-term moving average, only to drop below its 50 day EMA.

NTPC: The stock has been trading below the 200 day EMA since end-Oct ‘10; a couple of brief forays above the long-term average saw strong selling pressure; currently trading below its 50 day EMA.

ONGC: The bonus and stock split didn’t help the stock much; a day’s close above the 200 day EMA was followed by a steep drop below its 50 day EMA.

Rel. Comm.: A rally on strong volumes could only sustain above its 50 day EMA briefly, and has fizzled out already; the stock is well below its 200 day EMA.

Reliance: The stock has been trading in a broad sideways range, oscillating around its 200 day EMA – giving no returns to its investors; currently trading just below the long-term moving average.

Rel. Infra.: Another ADAG stock with equally disastrous results – a brief rally on good volumes above the 50 day EMA that is showing signs of weakness; the stock is trading way below its 200 day EMA.

Sterlite: A sharp rally accompanied by a volume spike took the stock from a low of 45 to a high of 68; but it stopped short of its falling 200 day EMA and started correcting.

Unless some of these 14 stocks start to rally soon, the Sensex may remain range-bound. Technically, the most likely candidates to help propel the Sensex upwards are BHEL, CIPLA, HUL, L&T, Maruti and Reliance. Dropping Rel. Comm. and Rel. Infra. from the index would not hurt either.

12 Sensex stocks displaying the ‘death cross’

The main reason why the Sensex isn’t showing a ‘death cross’ yet, is that only 12 of the 30 Sensex stocks are showing the ‘death cross’. The balance 18 are technically still in a bull market. For the uninitiated, the ‘death cross’ is the 50 day EMA crossing below the 200 day EMA on a price chart, signalling the beginning of a bear market. (The 50 day EMA crossing above the 200 day EMA, signalling the beginning of a bull market, is called a ‘golden cross’.)

Chart patterns of the 12 Sensex stocks displaying the ‘death cross’ (marked by blue ovals) are discussed below:

BHEL

BHEL is a PSU blue-chip that started correcting after hitting a peak in Oct ‘10. The correction in the Sensex from Nov ‘10 exacerbated the fall. The ‘death cross’ occurred in end-Nov ‘10, two days after the stock dropped sharply to an intra-day low of 2060. A strong pullback took the stock up to 2379, where it faced strong resistance from the combined 100 day and 200 day EMAs.

Though technically in a bear market, the stock is trying to build a base. A move above 2379 will create a bullish pattern of higher tops and higher bottoms. The RSI and slow stochastic are showing positive divergences, having reached higher tops as the stock made a lower top. Use the dip to accumulate.

DLF

DLF, the real-estate high flier, doesn’t really score very high on management ethics, accounting transparency or investor friendliness. The stock is in a long-term bear market. A brief rally took the stock to a 52 week high of 397 in early-Oct ‘10. That was an opportunity to sell. The ‘death cross’ in Dec ‘10 has restored the bear market. With the recent tightening of loans to real-estate players by banks and housing finance companies, you can forget about investing in this stock even as a contrarian play. It may be headed down to two-digits.

Hero Honda

Hero Honda was one of the stars of the bull market till its peak of 2094 in Apr ‘10. A technically overbought condition started a corrective spell. The confirmed news of Honda, Japan pulling out of the joint venture was given a thumbs down by the market. The uncertainty about the future has led to heavy selling. The ‘death cross’ in end-Jan ‘11 is signalling a bear market for this blue-chip. Avoid.

Jaiprakash Associates

Jaiprakash Associates has been in a down trend since touching a high of 180 in Oct ‘09. The ‘death cross’ occurred in May ‘10, confirming the bear market. The rally from Sep-Nov ‘10 was an exit opportunity. Launching huge projects and borrowing money by the truck-load seems to be the core competency of this company. The stock is headed towards low double-digits. Avoid.

Larsen & Toubro

It is a bit disappointing to see a blue-chip like Larsen & Toubro in this group of bearish Sensex stocks. It started correcting with the Sensex after touching a peak of 2212 on Nov 4 ‘10. The sharp fall in Jan ‘11 was partly due to the less-than-expected Q3 performance. The re-structuring into 9 separate companies has also caused some uncertainty in the minds of investors. The ‘death cross’ will occur tomorrow, but I would use this dip to accumulate the shares of this fundamentally strong and investor-friendly company.

Maruti Suzuki

Maruti Suzuki’s chart pattern has two ‘death crosses’ – one in May ‘10 and the other in Jan ‘11. What does it indicate? Technical analysis is not a science, and no rule is sacrosanct. The ‘death cross’ usually indicates the start of a bear market. But not in this case. The stock has been consolidating sideways since reaching a top of 1740 in Sep ‘09 – causing the ‘death cross’ to occur twice without entering a bear market. Yesterday’s low of 1170 formed a possible double-bottom. The RSI and slow stochastic are indicating a likely upward bounce. Accumulate.

NTPC

The NTPC stock chart pattern is also showing two ‘death crosses’ – the first in May ‘10 and the second in Nov ‘10. The stock has been drifting downwards since touching a peak of 242 on Dec 31 ‘09, and is in a bear market. The hype about the phenomenal growth and profit opportunities in the power sector has proved to be just that – hype. Avoid.

ONGC

The ONGC chart also has two ‘death crosses’ – one in Apr ‘10 and the other in Jan ‘11. The first one didn’t cause too much damage to the bulls. The current one is unlikely to do much damage also – because the FPO has been scheduled for Mar ‘11, and the DIIs are likely to buy at dips till the FPO goes through. This is a great company but the government’s meddling has messed up its operations. This is a major reason why I avoid all PSU stocks. Accumulate.

Reliance Comm

Where is the ‘death cross’ in the Reliance Communications chart? It happened more than two years back, and is not showing up in the one year chart pattern! The stock is in a long-term bear market and should ideally be removed from the Sensex 30 index. Only big-brother can bail this company out. Don’t go anywhere near this.

Reliance Infra

Reliance Infra chart also has two ‘death crosses’. The first one was caused by the sideways movement in Feb ‘10. The next one in Sep ‘10 signalled the bear market. Anil Ambani has proven to be a big bag of wind with a slow leak. If you are invested in this company, bail out now before it becomes too late.

Reliance Ind.

Reliance chart has two ‘death crosses’ as well – one in Aug ‘10 and the other in Jan ‘11. The first one was due to the sideways consolidation that has generated negative returns in the past one year. But the second one looks more ominous. The fall in Jan ‘11 has been steep and on increasing volumes. If Reliance doesn’t recover soon, it will drag down the Sensex with it. The technical indicators are hinting at a further fall. Wait for the correction to play out before entering. 

Tata Power

The ‘death cross’ in the Tata Power chart hasn’t yet happened – even though it has been marked in Sep ‘10. The 50 day EMA spent only a few trading sessions below the 200 day EMA due to the sideways consolidation, followed by a 52 week high. The current corrective spell may push the stock into a bear market. Wait for the correction to play out before entering.