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.

Gold and Silver chart patterns: bears fight back

Gold Chart Pattern

Gold’s chart pattern shows a strong fight back by the bears, just when all seemed lost. After moving above the 1770 level, gold’s price consolidated a bit before rising to a 2 months high of 1790. Proximity to the Nov ‘11 top of 1800 was used as an excuse by the bears to indulge in heavy selling.

Note that all three technical indicators touched lower tops as gold’s price reached a 2 months high. The negative divergences warned of an impending correction. But the high volume of selling marked a ‘distribution day’ (high near the opening level and a much lower close). Such high volumes were last seen during the sell-off in Sep ‘11. Volumes on down days (red volume bars) have exceeded volumes on up days (grey volume bars) on several occasions, and is a sign of distribution.

Gold’s price has dropped below its 20 day and 50 day EMAs, and it looks like it may drop further to its 200 day EMA. The technical indicators are looking bearish. The RSI has slipped below its 50% level. The MACD is still positive, but is falling below its signal line. The slow stochastic bounced up a bit from the edge of its oversold level, but it looks like a ‘dead cat bounce’.

Gold is still trading above its rising 200 day EMA – which means it is technically in a bull market. Hold, with a strict stop-loss at 1650.

Silver Chart Pattern

Silver’s chart pattern shows strong buying by the bulls in the third week of Feb ‘12 that pushed the price above the 37 level. High volume selling and a ‘reversal day’ pattern (higher high and lower close) marked the end of the intermediate rally from the Dec ‘11 low of 26.

The technical indicators are looking bearish. The RSI has dropped from the overbought zone to its 50% level. The MACD has crossed below its signal line, and is barely positive. The slow stochastic has fallen below its 50% level from its overbought zone.

Despite spending more than a month above the 200 day EMA, a bull market was not confirmed technically because the ‘golden cross’ of the 50 day EMA above the 200 day EMA didn’t occur.

Silver’s price is likely to fall below its 200 day EMA, and return to a bear market after a foray into bull territory. Sell.

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.

BSE Sensex and NSE Nifty 50 Index Chart Patterns – May 06, ‘11

The higher-than-expected interest rate hike by RBI triggered a fresh wave of selling, and all support levels mentioned in last week’s analysis of the BSE Sensex and NSE Nifty 50 index chart patterns fell by the wayside.

The FIIs were net sellers throughout the week. The DIIs were net buyers. Last Friday’s (May 6 ‘11) pullback was mainly due to DII net buying overwhelming FII net selling.

BSE Sensex Index Chart

The bulls may be enjoying their weekend, content that the sharp fall in oil prices should halt the relentless FII selling. The pullback of the Sensex above the upward-sloping trend line is a positive. The higher bottom of 18161 touched on May 5 ‘11 keeps the bullish pattern of higher tops and higher bottoms since the low of 17296 (Feb 11 ‘11) intact. That is another positive.

But a glance at the technical indicators is enough to banish any bullish hopes. The MACD is negative and below its signal line. The ROC is negative and below its 10 day MA. The RSI is trying to emerge from its oversold zone. The slow stochastic is inside its oversold zone. All four indicators reached lower bottoms while the Sensex made a higher bottom. The negative divergences may extend the correction.

Almost forgot to mention (in case you haven’t seen it already) that the Sensex is trading below its 200 day EMA. The ‘death cross’ of the 50 day EMA below the 200 day EMA will confirm a re-entry into a bear market.

Nifty 50 Index Chart

Friday’s pullback in the Nifty 50 chart didn’t quite make it above the upward-sloping trend line, and there is every possibility of the index resuming its down trend next week. In spite of the drop in oil price, twin concerns of inflation and high interest rates are taking a toll on investor sentiments.

Last week, I had mentioned that higher volumes on down days during Apr ‘11 (note the higher red volume bars) was a sign of distribution. The sliding OBV indicator clearly exemplifies distribution.

There are no signs of a turn around in the down trend yet. But the index is indicating oversold conditions, which could lead to a recovery. If oil’s price continues to tumble, India’s fiscal deficit situation will improve. If results of the state elections go in favour of the ruling party at the centre, it could provide a trigger to buy.

Lots of ifs and buts. Shows that the near future is uncertain. Patience and discipline are virtues during such times.

Bottomline? The BSE Sensex and Nifty 50 index chart patterns are on the verge of dropping into bear markets. Long-term investors should keep a close watch on support levels of 17600 for Sensex and 5300 for Nifty. Use Q4 results to short-list stocks for your ‘buy’ list.