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Thursday, April 25, 2013

Stock Chart Pattern: Akzo Nobel (ICI) India – An Update

The previous technical update of the stock chart pattern of Akzo Nobel (ICI) India was posted back in Nov ‘11 (marked by grey vertical line in chart below). The stock price had been in a corrective mode after touching an all-time intra-day high of 1045 in Jul ‘11.

Disappointment with quarterly results was compounded by the merger with three unlisted subsidiary companies that increased the shareholding of the overseas promoter. Bears slammed the stock, and the price dropped to an intra-day low of 693 in Dec ‘11.

The low, which coincided with the low made by the Sensex, also happened to fall within the long-term support/resistance zone between 680 and 750. A further signal to bulls came in the form of positive divergences in all four technical indicators that touched higher or flat bottoms (marked by blue arrows) while the stock’s price touched a lower bottom.

The 18 months daily bar chart pattern of Akzo Nobel shows why it is a stock that small investors should think of accumulating on dips:

ICI_Apr2513

After making a ‘V’ shaped recovery from the support zone between 680 and 750, the stock price has been in a steady uptrend characterised by sharp price spurts on high volumes, followed by periods of correction and sideways consolidation – typical price behaviour for a buy-and-hold kind of stock.

The regular corrections and consolidations may have tested the patience of investors interested in making quick profits, but improved the technical ‘health’ of the price chart, allowing it to move upwards.

While the Sensex and Nifty topped out in Jan ‘13 and have been correcting for nearly 4 months, Akzo India kept moving higher. The stock rose to touch a new all-time intra-day high of 1095 on Apr 4 ‘13, but formed a ‘reversal day’ pattern (higher high, lower close) that started another spell of correction.

Daily technical indicators are looking bearish. MACD is below its signal line and slipped back into negative territory. ROC crossed above its 10 day MA but remains negative. RSI is about to enter its oversold zone. Slow stochastic has emerged from its oversold zone. Some more correction/consolidation is likely.

Note that the stock is trading above its rising 200 day EMA, and is in a bull market. A 50,000 tonne greenfield manufacturing facility at Gwalior – expected to start commercial production later in the year – should add to top and bottom line growth. The company is debt-free and sitting on a sack full of cash.

Bottomline? The stock chart pattern of Akzo India (ICI) Ltd is undergoing a correction in a bull market after touching an all-time high. Such corrections offer entry opportunities, but it pays to be careful near all-time highs. So maintain a strict stop-loss if you decide to enter. Alternatively, check the forthcoming annual results before entering.

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