Blog readers may be aware of my aversion for sugar sector stocks. However, sugar sector stocks are showing signs of waking up after a prolonged hibernation. It may be a good time to take a look at them, provided you feel that they will make a sweet addition to your portfolio.
Remember that sugar is a commodity sector in which companies neither have much pricing power, nor can they resort to import/export to tide over shortages/gluts because of government interference at every step. That makes it a sector that small investors should avoid.
If you are nimble-footed, have high risk tolerance and know how to get in and out quickly, sugar stocks can give great returns in a short span of time. But you can get badly stuck just as easily. Caveat emptor!
Given below are the charts and brief technical analysis of 10 stocks from the sugar sector – most of them still struggling in bear markets.
Bajaj Hindusthan stock has moved above its 20 day and 50 day EMAs on good volume support, but is still trading below its falling 200 day EMA. The stock touched a higher bottom in Jun ‘12, which is a positive for bulls. Already, technical indictors are showing overbought conditions. A correction may be around the corner.
Balarampur Chini stock is beginning to look bullish, after forming a saucer-like consolidation pattern and rising above its 200 day EMA once more. A move above its Apr ‘12 top of 60 will form a bullish pattern of higher bottoms and higher tops. Technical indicators are looking overbought – a pullback to the 200 day EMA is likely.
DCM Shriram Industries
The stock of DCM Shriram Industries is looking similar to the Bajaj Hindusthan stock – but with an important difference. The bottom touched in Jun ‘12 was lower than the one touched in Dec ‘11. The recent price spurt has not seen much increase in volumes. THe stock is likely to drop lower.
The stock of Dhampur Sugar has doubled in price from its Dec ‘11 low and is the only one to have returned to a bull market. All three EMAs converged in Jun ‘12, and a sharp up move followed on strong volumes. The stock is trading above all three EMAs and has formed a bullish pattern of higher bottoms and higher tops. Technical indicators are looking overbought. A pullback is likely. Use it to enter.
Dwarikesh Sugar stock is showing signs of emerging out of its bear market by forming a saucer-like pattern and crossing above its 200 day EMA on a volume spurt. A pullback to the long-term average was followed by a bounce up. A move above its Jan ‘12 top of 48 will form a bullish pattern of higher bottoms and higher tops.
EID Parry stock has risen sharply to test its falling 200 day EMA. It is in a down trend and technically in a bear market, so a correction can be expected after the sharp rise. Technical indicators are looking overbought.
The stock of Rajshree Sugar has risen very sharply above its 200 day EMA on a volume spurt. It has formed a bullish pattern of higher bottoms and higher tops. The ‘golden cross’ of the 50 day EMA above the 200 day EMA will technically confirm a bull market. Technical indicators are overbought – a pullback towards the 200 day EMA is likely.
Shree Renuka Sugar
Renuka Sugar stock was a hot favourite in the previous bull market, but the promoter’s ambitions were not matched by business savvy or execution. Note the high volume ‘panic bottom’ formed in Nov ‘11, followed by a drop to a lower bottom in Dec ‘11. An example of the old stock market adage: ‘Panic bottoms’ seldom hold. The stock touched a higher bottom in Jun ‘12, but remains in a bear market.
The stock of Simbhaoli Sugar is trying to get out of the clutches of bears. Positive divergences in all four technical indicators - which touched higher bottoms while the stock dropped lower – preceded the current rally. Technical indicators are looking overbought. Expect the bears to attack again.
The stock of Ugar Sugar has formed a bullish rounding bottom pattern to move above its 200 day EMA. A rise above its Feb ‘12 top of 16 will form a bullish pattern of higher bottoms and higher tops. The stock trades in low volumes – so getting in and out may become an issue.
[Note: I don’t track the sugar sector, and have very little idea about the fundamental strength (or lack of it) of these stocks. Please do your own due diligence.
If you are interested in fundamentally strong mid-cap and small-cap companies, you can subscribe to my Monthly Investment Newsletter. Paid subscriptions will remain open till Jul 21 ‘12.]