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Wednesday, June 22, 2011

Stock Chart Pattern - Container Corporation of India (an update)

My previous post about the stock chart pattern of Container Corporation is almost two years old. The stock was consolidating within a symmetrical triangle after a strong rally that touched a peak of 1149 in July ‘09.

I had expected a correction down to the 50 day EMA or 200 day EMA because the stock was trading well above the 50 day EMA, and the gap between the 50 day EMA and 200 day EMA had become large (which precedes a correction or reversal). The technical indicators were also looking weak.

A trend reversal was ruled out because a symmetrical triangle is usually a continuation pattern. The logical break out was upwards, and a test of the all-time high of 1222 (reached in June ‘07) was on the cards before the correction. Let us take a look at the two years closing chart pattern of Container Corporation and observe what transpired over the past two years:

ContainerCorp_Jun2211

Several interesting patterns have formed on the chart, and I will take them up one by one. The expected upward break out from the triangle pattern took the stock’s price to 1235 on Aug 24 ‘09, just above the all-time high of 1222, before a correction ensued – or rather a consolidation within a flag (which is also a continuation pattern).

Note that the first down leg of consolidation within the flag was supported by the 50 day EMA in Sep ‘09. The upward bounce found resistance at 1222 in Oct ‘09. The next down leg pierced the 50 day EMA but stopped well short of the 200 day EMA.

The upward break out from the flag was not accompanied by a volume surge. No wonder the stock price consolidated sideways between 1222 – 1235 during the better part of Dec ‘09 before a high volume surge propelled the stock to a new high of 1321 in Jan ‘10.

The subsequent correction dropped below 1222, but found support twice on the line projected from the upper boundary of the flag pattern. Another volume surge in Mar ‘10 pushed the stock to a new all-time intra-day high of 1500 on Apr 22 ‘10. It turned out to be a ‘reversal day’ (higher high, lower close) – warning of a reversal of the up trend.

The first leg of correction found support from the rising 200 day EMA in May ‘10 and then again from the 1222 level, before rising to 1429 in Jul ‘10 – forming a bearish double-top pattern and confirming the trend reversal.

The stock has been on a down trend since then, preceding the correction in the broader markets. Except for a brief rally from Feb ‘11 to Apr ‘11, the downward slide has been unabated. Note that the bottoms in Feb ‘11 and May ‘11 occurred on the projected line from the top boundary of the flag formation!

The stock price has made a bearish ‘rounding-top’ pattern, which is clearly visible in the 200 day EMA. All four technical indicators are bearish, so the 15 months correction hasn’t ended yet. There is long-term support at 1010, and below that, stronger support is at 900.

The zero-debt company is fundamentally strong – practically a monopoly business that generates a ton of cash from operations, and pays regular dividends (twice a year since 2005). For the past few quarters, growth has been tepid and profits have been flat. That doesn’t really justify the 32.7% correction from the Apr ‘10 intra-day high of 1500 to the May ‘11 intra-day low of 1010.

Bottomline? The stock chart pattern of Container Corporation has undergone a significant correction. While another 10% correction can not be ruled out from current level, small investors would do well to start accumulating slowly instead of chasing after ‘cheap’ stocks.

3 comments:

shiv said...

sir, touched 52 weeks low is it a buy ,hold or sell?aat these levels

Subhankar said...

The stock is in a bear market, and has broken below a bearish descending triangle on a closing basis. It can drop another 15-20%.

Better to wait out the correction, and enter on a clear trend change signal.

Subhankar said...

The board will be considering a bonus issue on Jul 25 '13.