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Friday, October 12, 2012

Stock Chart Pattern - Jagran Prakashan (An Update)

In the previous update to the stock chart pattern of Jagran Prakashan – posted on May 4 ‘11 (marked by grey vertical line on chart below) – it was observed that the stock price was consolidating within a rectangular band between 105 and 140.

The prolonged consolidation may have frustrated long-term investors but provided good trading opportunities. The eventual break out from a rectangle can occur in either direction. In this case, the support level of 105 got decisively broken in Aug ‘11.

Note that after dropping below 105, the stock began consolidating within a bearish ‘rising wedge’ pattern from which it broke downwards – only to form another ‘rising wedge’ pattern. The break down from the second ‘rising wedge’ dropped the stock price to a closing low of 91 in Dec ‘11 that coincided with the bottom formed by Sensex and Nifty.

JagranPrakasan_Oct1112

A third ‘rising wedge’ pattern formed on the closing chart pattern of Jagran Prakashan during Dec-Jan ‘12. An interesting variation of a ‘rising wedge’ can be observed. Instead of breaking downwards once more, the stock broke out upwards, accompanied by a volume surge.

This is an example why technical analysis is not a science. Chart patterns don’t always play out as expected, and one has to wait for the eventual break out. A ‘rising wedge’ is a bearish pattern from which the likely break out is downwards. However, perhaps due to the rally in the broader market, Jagran’s stock moved up.

The stock price formed a small bearish ‘double top’ pattern in Feb ‘12 that coincided with the tops made by Sensex and Nifty. Note that three of the four technical indicators – ROC, RSI, slow stochastic – also formed double tops. The stock dropped below all three EMAs in Mar ‘12, consolidated within a ‘pennant’ (narrow triangle) for 5 weeks before dropping all the way down to 80 in May ‘12.

A steady rally – marked by blue uptrend line – has taken the stock price above its 200 day EMA. The 20 day EMA is ready to cross above the 200 day EMA, and the 50 day EMA is likely to follow suit. Expect some resistance as the stock nears the level of 105.

Technical indicators are looking bullish, which means the stock is likely to move higher. Margins have been under pressure because of steep rise in the cost of newsprint, plus losses from two newly-launched Punjabi Jagran editions. Acquisitions of Nai Dunia and Nav Dunia – Hindi newspapers published from MP and Chattisgarh - should add to top and bottom lines. Dainik Jagran remains the largest read daily in India.

Bottomline? Stock chart pattern of Jagran Prakashan appears to be emerging from a long bear phase. Accumulate with a stop-loss at the uptrend line (currently at 90). Alternatively, wait for a convincing move above 105 to enter. The company generates a lot of cash from operations and is a regular dividend payer.

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