Is OnMobile Global for sale?

A few weeks back, there was a rumour in the market that TCS was looking at the possibility of buying OnMobile Global. That remained a rumour and did not become news. Those who may have bought the stock on the basis of the rumour may be waiting for an opportunity to sell.

That opportunity may not be far away. As per a recent article in Business India magazine, OnMobile Global is on the block and the latest suitor is Idea Cellular (of the Aditya Birla group). Apparently, Idea is ready to buy a 60% stake in the company at a price of Rs 100 – which is 33% higher than today’s closing price of Rs 74.40.

If this rumour turns out to be true, then investors may be able to pocket a neat gain if they enter at the current market price. Acquisition of a 60% stake – or even a lower stake - will trigger an open offer to existing shareholders.

In a post on the telecom sector a couple of months back, it was observed that the OnMobile stock was trying to form a bottom by consolidating within a rectangular band between 54 and 73. It was suggested that the stock could be a contrarian bet, but with a strict stop-loss at 52.

In Jan ‘12, the stock crossed above the rectangular consolidation zone, rose to an intra-day top of 84 on Feb 15 ‘12 and briefly breached its falling 200 day EMA. It has now pulled back to the top of the rectangular band. An upward bounce can be used to add/enter.

What if the rumour about Idea‘s stake buy remains a rumour – like it happened in the case of TCS? The company is fundamentally strong, and its overseas businesses, which contribute nearly half of its total revenues, are supposedly doing well. Domestic business is under pressure. Q3 results showed 12% top line growth but a 11% dip in the bottom line.

With smart phones becoming cheaper by the day and 3G service roll-outs in progress, OnMobile’s expertise in value-added software services should see growing demand. Even if the stake sale doesn’t go through, it may be worth holding on to the stock. A buy-back by the management, with a ceiling at Rs 85, is currently in progress.

Stock Index Chart Patterns - BSE Sectoral Indices, Feb 22, '12

A few days after the previous post two months back on the chart patterns of BSE’s Sectoral indices, the Sensex touched a bottom and embarked on a two months long rally. It may be a good time to check how the Sectoral indices have fared.

BSE Auto Index

The BSE Auto index received good support from the lower end of the rectangular consolidation zone between 8000 and 9700 and rallied smartly to the upper end of the band earlier in Feb ‘12. After a brief consolidation, the index has broken out to test its Jan ‘11 top.

A pullback down to the top of the rectangular band can be expected. The ‘golden cross’ of the 50 day EMA above the 200 day EMA and more than a 20% rise from its recent bottom have confirmed a return to a bull market. Add on dips.

BSE Bankex

The BSE Bankex has risen more than 40% from its Dec ‘11 low, but is yet to test its 2011 tops. The index has moved well past the support/resistance level of 11400 and its 200 day EMA, but the ‘golden cross’ is still awaited. That should not deter investors from accumulating.

BSE Capital Goods Index

The BSE Capital Goods index is struggling to break the stranglehold of the bears. It is trading below the support/resistance level of 12300 and is yet to convincingly move above its 200 day EMA. Accumulate selectively.

BSE Consumer Durables Index

The BSE Consumer Durables index has risen almost 40% from its Dec ‘11 low and is on the verge of entering a bull market. Three ‘fan lines’ have been drawn through the Nov ‘10 top. Note that the second line drawn through the Apr ‘11 top became a support level in Jun, Aug and Nov ‘11. After getting breached in Dec ‘11, it briefly acted as a resistance level. Accumulate selectively.

BSE FMCG Index

One look at the BSE FMCG index should make it clear to all why it is my favourite sector. Despite a brief drop below the 200 day EMA in Feb ‘11, the index remained in a bull market and outperformed the Sensex. Nothing spectacular or exciting, just a steady climb along the second fan line. Add on dips.

BSE Healthcare Index

After a 13 months long consolidation within a triangle pattern, the BSE Healthcare index has broken out upwards and returned to a bull market. It is currently consolidating within a small ‘falling wedge’ pattern from which it should break out upwards. Accumulate.

BSE IT Index

The BSE IT index has sailed above the blue down trend line and back into a bull market. The expected slow down in the Eurozone didn’t happen. Add on dips.

BSE Metal Index

The BSE Metals index is still in a bear market, despite rising 37% from its Dec ‘11 low and a brief foray above the 200 day EMA. The blue down trend line continues to rule the chart. One can be a contrarian, but be very selective in choosing stocks.

BSE Oil & Gas Index

The BSE Oil & Gas index is trying desperately to stay above the 200 day EMA, but has still not broken its down trend line. Interference by the government has almost ruined this sector. Avoid the oil PSUs. The gas PSUs are in better shape.

BSE Power Index

A spectacular rally in the beaten down BSE Power index has almost propelled it into a bull market. The index is trading above its 200 day EMA and has pulled back to the blue down trend line after climbing past it. The ‘golden cross’ is still awaited. Rumours of likely sops in the forthcoming budget has fuelled the rally. Unless coal supply is ensured, the power sector may continue to face headwinds. Avoid.

BSE Realty Index

The BSE Realty index had been hammered to a pulp by the bears, but is trying to make a strong recovery. The chart shows an upward break out from a bullish inverse head-and-shoulders reversal pattern. The ‘head’ of the pattern is itself a mini inverse head-and-shoulders pattern. Note that the minimum upward target from the inverse head-and-shoulders pattern has been met.

After climbing above the 200 day EMA and the support-resistance level of 1900, the index is pulling back towards both. If you want to invest in the sector, you may want to read this recent post.

Stock Chart Pattern - Canara Bank (an update)

The previous post about the stock chart pattern of Canara Bank was back in Oct ‘09. The stock price was correcting after touching a 52 week high. Due to my aversion to PSU stocks in general, and Canara Bank in particular, I had advised investors to look at a couple of other PSU banks.

One of the mistakes that investors often make is failing to perceive the difference between a company and its stock chart pattern. A stock of a fundamentally sound company can perform poorly; another company that may have a weak balance sheet, can shoot up like a rocket for no rhyme or reason.

I am not ashamed to put up my hand up and say: “Mea culpa.”  I allowed a poor opinion of the customer service standards of the bank to cloud my outlook for its stock chart. A look at the three years closing chart pattern of Canara Bank will show how badly wrong I was:

Note the two dark grey vertical lines on the chart – the first marks the date of my earlier post and the second marks the date when the stock touched its all-time closing high of 836 (a whopping 470% gain from its Mar 17 ‘09 closing low of 146 – outperforming the Sensex by a huge margin).

Shortly after I wrote the previous post, the stock price completed its correction by bouncing up from its rising 50 day EMA and then entered a 7 months long consolidation within a rectangle pattern before breaking out in July ‘10. The stock had a parabolic rise over the next 4 months and touched its all-time high of 836. Only the MACD touched a new high. The other three technical indicators - ROC, RSI and slow stochastic – failed to reach new highs.

The negative divergences gave advance signal of an impending correction, which turned out to be a change of trend as the stock fell within a downward-sloping channel for more than a year to touch a closing low of 354 on Dec 28 ‘11. The big fall of almost 500 points (58% from the peak of 836) underperformed the Sensex by more than two times.

The current FII driven rally has seen a strong recovery by the stock, which has risen nearly 55% from the low of 354 – this time outperforming the Sensex by two times. Such a performance – outperforming the Sensex during bull periods and underperforming during bear periods – can be expected from a mid-cap stock, but not from a large-cap stock like Canara Bank.

Note the two blue down arrows on the right hand side of the chart. The top one is pointing to the break out above the downward channel (and the 200 day EMA), followed by a pullback and the subsequent vertical rise. The bottom one is pointing to the sharp upsurge in volumes that accompanied the break out and subsequent rise, thus validating the break out.

Interestingly, the pullback to the top of the channel coincided with declaration of disappointing Q3 results. Net profit fell nearly 21% though income rose by 33% compared to the year-ago Q3. Both gross and net NPAs rose on a YoY and QoQ basis, which is a worrying sign. The technical indicators are looking overbought, but they have looked that way for the past month, and may remain so a while longer.

Bottomline? The stock chart pattern of Canara Bank clearly shows that it performs more like a mid-cap stock – providing large gains during bull phases and big falls during bear phases. Looks like another bull phase has begun. Add on dips, but don’t forget to maintain a suitable stop-loss.

Stock Index Chart Patterns - BSE Sectoral Indices, Dec 2, '11

The BSE Sectoral index charts were looking down and out when I had looked at them three months back. The Sensex rally in Oct ‘11 was led by the auto and FMCG sectors. The other sectors failed to make much progress.

BSE Auto Index

The BSE Auto index chart has been redrawn from a bearish descending triangle to a more neutral rectangular consolidation pattern. The Oct ‘11 rally propelled the index above its blue down trend line, and all the way up to the 9770 support-resistance level. The index subsequently dropped back inside the triangle to the 8115 level (the lower edge of the rectangle), only to jump up above the down trend line last week.

The technical indicators are correcting the oversold condition but haven’t turned bullish yet. The 200 day EMA is moving sideways with the index oscillating around it. A break below 8115 will push the Auto index into a bear market. Hold.

BSE Bankex

The BSE Bankex had broken below the support level of 11400 in Aug ‘11. The support level turned into a strong resistance level and effectively thwarted all subsequent up moves. The ‘death cross’ in Aug  ‘11 had confirmed a bear market, and the index is falling deeper inside bear territory. Q3 results may be worse. Stay away.

BSE Capital Goods Index

The BSE Capital Goods index struggled vainly to cling on to the support level of 12160 in Sep ‘11, failed to cross above the falling 50 day EMA, and has been sliding down ever since. The sector has been hard-hit by the slow down in infrastructure projects due to the high interest rate regime. It may take a couple more quarters before the sector shows some signs of life. Avoid.

BSE Consumer Durables Index

The BSE Consumer Durables sector tried valiantly to remain in a bull market. The lower top formed in Oct ‘11 seemed to be the last straw that broke the sector’s back, as it plunged into a bear market.

Technically interesting are the three fan lines drawn on the chart. Note how the index kept rising in Sep ‘11 but stopped short of the first fan line. The failure to move above the first fan line was a sign of weakness. The index got good support from the second fan line before breaking below it. A break below the third fan line (where it is currently receiving support) may push the sector deeper into a bear market. Sell.

BSE FMCG Index

The BSE FMCG index is still in a bull market, despite its failure to cross above the first fan line. The 200 day EMA is rising; the 20 day and 50 day EMAs as well as the index are trading above the 200 day EMA. The second fan line is acting as the revised up trend line.

It is the only sector still in a bull market and has prevented the Sensex from collapsing. Now you know why it is my favourite sector. It saves your portfolio during bear markets. Accumulate.

BSE Healthcare Index

The BSE Healthcare index has been trading within a large triangle pattern. In spite of the ‘death cross’ (of the 50 day EMA below the 200 day EMA) in Sep ‘11, the index hasn’t fallen much. It may continue to consolidate within the triangle for some more time before finally breaking out.

Logically, the break out should be upwards, since consolidations tend to be continuation patterns. But triangles are unreliable, so be prepared for a downward break. Hold.

BSE IT Index

The BSE IT index collapsed into a bear market in Aug ‘11. The recovery has been quite stunning. The index rallied for three straight months before stalling at the upper edge of the downward sloping channel. It has been trading within the channel for the past month.

The technical indicators are showing some bullish signs. Unless the Eurozone debt problems get resolved satisfactorily, the IT sector will continue to face headwinds. The good news is that the US economy is finally showing some signs of improvement. Hold.

BSE Metal Index

The BSE Metals index had dropped below its downward sloping channel in Aug ‘11, and has stayed below it – making a series of lower tops and lower bottoms as it falls deeper inside a bear market. Unless the metals sector and the capital goods sector turn around, the Sensex will not be able to come out of the bear’s grip. Avoid.

BSE Oil & Gas Index

The BSE Oil & Gas index is falling within a broad downward sloping channel in a bear market. The government continuous meddling and failing to take tough decisions of decontrolling diesel and kerosene prices is pushing the sector into huge losses and increasing the subsidy burden.

Reliance, the market favourite, is under all kinds of threats and pressures. The company has been an acknowledged expert not just in backward and forward integration of its businesses, but in bending every rule in the book. Thanks to Anna Hazare’s anti-corruption campaign, government officials are now seeing snakes under every rock. Without the support of ONGC and Reliance, the sector will remain in the doldrums. Avoid.

BSE Power Index

The BSE Power index failed to rise above the support-resistance level of 2250 during the Oct ‘11 rally. After breaking down below the downward sloping channel, it is attempting a pullback towards the channel. If it fails to do so, the index may fall much lower. The great hype about the power sector has fizzled out. Avoid.

BSE Realty Index

The BSE Realty sector continues to be the worst performer among the BSE Sectoral indices. After three months of sideways consolidation between 1625 and 1900 the index broke down below the rectangular zone. It is attempting to re-enter the rectangular band but facing resistance from the falling 20 day EMA. Avoid.

(Note: I have suggested a few ‘Hold’s and an ‘Accumulate’. The rest are ‘Avoid’s. That doesn’t mean individual stocks in the sectors should be avoided. One or two may be good contrarian buys. It may be better to avoid basket buying in the underperforming sectors.)

Gold and Silver Chart Patterns: divergent directions

In my previous update of gold and silver chart patterns, both precious metals had bullish upward breakouts. Gold broke out from a rectangular consolidation pattern to touch the 1600 mark. Silver broke out from a symmetrical triangle pattern to reach the 40 level. However prices have taken divergent routes in the past three weeks.

Gold Chart Pattern

Gold’s price had risen almost vertically to the 1600 level, and I had expected a pullback to 1550 (the top of the rectangular pattern). The price did dip, but only to 1580, before resuming its rally. It has once again climbed almost vertically past its 14 day, 30 day, 60 day and 200 day SMAs to 1717 and is looking overbought.

The debt ceiling wrangle followed by S&P’s downgrade of US credit rating has caused a flight of safety to the yellow metal. According to data from the Commodity Futures Trading Commission, gold purchases leaped to more than 18 million ounces over the past month - from 8.4 million for the entire year up to July. Is it too late for investors to enter now?

Yes and no. No, if you believe the US and Eurozone economies will take a long time to recover, and the US dollar will continue to lose its value. Yes, if you think stock prices have come down to reasonable valuations can provide better percentage returns in the long-term.

If you are paralysed by fear because of the sudden, sharp fall in global equity markets, hold on to your cash. You are not in the correct mental frame to take rational buy/sell decisions. If gold forms only 5-10% of your portfolio allocation, past three week’s rise in price coupled with the fall in equities has probably pushed your gold allocation above the limit. Book part profits. If you are a new entrant enticed by the prolonged bull rally, wait for a dip below the 14 day SMA to buy.

Silver Chart Pattern

Silver’s sharp price rise was followed by a sideways consolidation during which it touched a high of 42 but slipped below the 14 day SMA to a low of 39. It is struggling to cross above the 14 day SMA, and may correct some more.

The dip may be used to buy. Conservative investors can wait for a convincing cross above the 42 level. The rising 200 day SMA indicates that the bull market is intact.

Gold and Silver Chart Patterns: an update

The chart patterns of gold and silver have made significant bullish breakouts since my earlier post two weeks back. As often happens with bullish breakouts, investor interest has risen proportionately. I received quite a few queries whether this is a good time to enter.

Gold Chart Pattern

Gold’s price rose almost vertically to pierce the psychological 1600 mark intra-day. I had mentioned about the price consolidation within a rectangle between 1480 and 1550, from which an upward breakout was likely. Accordingly, buying on a breakout above the 1550 level was advised.

Note that gold’s price spurt has been too fast. It has risen far away from its 14 day, 30 day, 60 day, and 200 day SMAs. A pullback towards the 1550 level is a possibility. That may be a better price point to enter.

Silver Chart Pattern

Silver’s price was consolidating within a symmetrical triangle from which an expected downward break did occur. But the 34 level provided good support. The previous low of 32.50 wasn’t tested.

The bulls managed a spirited recovery that took silver’s price above the 14 day, 30 day and 60 day SMAs – as well as the 40 mark. The rise has been a bit steep, and a dip down to 38 is possible. The dip can be a good point to enter.

Till the growth uncertainties in the Eurozone and US economies recede, the precious metals will continue to be safe havens for jittery investors.

Gold and Silver Chart Patterns: trying to find bottoms

Gold Chart Pattern

In the previous post, I had mentioned about a possible bullish ascending triangle pattern formation on gold’s chart - from which an upward break out was likely. Ascending triangles tend to be fairly reliable. But not so this time. An attempted upward break out was thwarted by the bears.

Selling pressure pushed down gold’s price below its 14 day and 30 day SMAs. However, the previous low of 1480, touched in May ‘11, seems to be providing support. If the support holds, gold’s price will form a rectangular consolidation pattern – within 1480 and 1550. Rectangles  are usually continuation patterns – which means an upward break out is likely.

What should investors do? The earlier suggestion stands: buy on a break out above 1550. An analyst friend, whose bold views I admire, believes that gold’s price can double by the end of 2011 – because current demand is far outstripping supply. Apparently, a detailed report by Standard Chartered has echoed his bullish views.

Caveat Emptor. 

Silver Chart Pattern

Silver’s chart pattern had been consolidating within a symmetrical triangle, after dropping from its peak of 48.70. Symmetrical triangles tend to be continuation patterns, and I had expected a downward break below the triangle, followed by a test of support from the rising 200 day SMA.

Silver’s price did break below the triangle, but is trying to find a bottom at the support level of 34. Will the support hold? May be not. A test of the previous low of 32.50 and the 200 day SMA can’t be ruled out yet.

The white metal is trading below its 14 day, 30 day and 60 day SMAs after making a series of lower tops and lower bottoms. The short-term and medium-term views are bearish. Bulls should not lose heart – as long as silver trades above its rising 200 day SMA.