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Friday, January 18, 2013

Stock Chart Pattern - Navneet Publications (An Update)

In the previous update to the stock chart pattern of Navneet Publications (posted back in Oct 20, 2011 – marked by grey vertical line in chart below), the recommendation was to ‘use dips to buy’, because the stock was in an uptrend in a bull market.

However, the caveat was: “Bears will remain in the picture as long as the stock fails to move above its previous top of 74.” Two weeks after my post (on Nov 4 ‘11), the stock rose to touch an intra-day high of 71 – but it turned out to be a ‘reversal day’ (higher high, lower close).

Also, all four technical indicators showed negative divergences by touching lower tops while the stock price rose higher (marked by blue arrows). The combined negative divergences and the ‘reversal day’ pattern warned of a possible correction, which came swiftly as it coincided with the correction in the broader market.

Navneet_Jan1813

The stock price dropped past the support level of 61, the 200 day EMA and the blue uptrend line in rapid succession. The 50 day EMA crossed below the 200 day EMA – the ‘death cross’ confirming a bear market. The stock price continued to drop and breached the long-term support level of 52 in Dec ‘11.

Observant readers may note that while the stock touched a new low of 50.60 on Dec 20 ‘11, all four oversold technical indicators had already started moving higher – the combined positive divergences hinting that the sharp correction was over.

For almost 12 months after touching its low, the stock price consolidated sideways within a rectangular band between 52 and 61 – testing the patience of investors, but providing traders with some decent trading opportunities.

In late Nov ‘12, all three EMAs almost merged with each other. As often happens, a sharp move followed, which turned out to be upwards. Rectangular consolidations are unpredictable because the eventual break out can happen in either direction. In this case, the up move breached the 61 level on a volume spurt – which gave technical validity to the upward break out.

The stock price rose to touch an intra-day high of 70.20 on Dec 24 ‘12, testing but failing to cross its Nov ‘11 top. A correction/pullback ensued. The stock price has almost dropped to the top of the rectangular consolidation range. Such a pullback after an upward break out on strong volumes provide an opportunity to enter.

The daily technical indicators are bearish, which means the correction may not be over just yet. MACD is still positive, but is falling rapidly below its signal line. ROC is negative, and falling below its 10 day MA. RSI has bounced up from the edge of its oversold zone, but is below its 50% level. Slow stochastic has entered its oversold zone.

Fundamentals remain reasonably good, though cash flows from operations dipped into the negative in FY12. Steady growth in top and bottom lines is a positive. Q3 results should be checked before entering. Alternatively, enter with a stop-loss at the rising 200 day EMA.

Bottomline? The stock chart pattern of Navneet Publications has entered a bull market after a long sideways consolidation. Bears have not been vanquished yet, so slow accumulation rather than buying a large lot is advised. The company is investor-friendly and pays decent dividends.

2 comments:

Anand Reddy said...

Hi Sir - Do you think Navneet has break-out from 75 range this time. Looks to be moving higher with SL:75?

Thanks,
Anand

Subhankar said...

Yes, Anand.

Can be accumulated with a stop-loss at 70. But this stock tests patience and doesn't give great upsides.