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Wednesday, April 30, 2014

Technical updates – Sanghvi Movers and Sintex Industries

Shareholders of infrastructure stocks had a rough time over the past couple of years. Most stocks suffered badly at the hands of bears as India’s economic growth slowed down and investments in infrastructure and capital goods petered off.

In a previous post on Thermax and Voltas, it was seen that the closing charts of both companies had shaken off the bears to touch new 2 year highs. The situation on the two charts below tell a different story.

Both stocks bottomed out and re-entered bull territory – the ‘golden cross’ of the 50 day EMA above the 200 day EMA technically confirm that. Both have also doubled from their respective bear market lows. However, they are struggling to cross long-term support/resistance levels.

Sanghvi Movers

Sanghvi Movers_Apr3014

The stock price of Sanghvi Movers touched a bottom of 37.35 on Aug 21 ‘13 and then a slightly higher bottom of 37.85 on Aug 27 ‘13. The small ‘double-bottom’ reversal pattern ended the long bear market. After consolidating sideways with a slight upward bias for the next 6 months (‘accumulation’ phase), the stock rose sharply above its 200 day EMA on a volume surge on Mar 10 ‘14, and continued to rally strongly till it approached its long-term support/resistance level of 85.

Note how the 85 level provided strong support in Aug ‘12 and Nov ‘12 (marked by green up arrows). After a convincing downward breach in Feb ‘13, the 85 level remained untested till the stock rose to touch a 52 week high of 83.45 on Apr 29 ‘14 (marked by red down arrow). Technical indicators are in overbought territories. ROC, RSI and Slow stochastic are showing negative divergences by failing to touch new highs. A correction is likely.

Sintex Ind

Sintex_Apr3014

The stock of Sintex was a darling of small investors 4-5 years back. Its bear market ended with a classic ‘inverted head-and-shoulders’ bottom reversal pattern that formed during Aug-Sep ‘13. Why classic? Because the pattern formed at the end of a long down move. Any ‘reversal’ pattern must have something to reverse. (Some times a pattern may look like a head-and-shoulders pattern, but if it doesn’t form at the end of a long up/down move then the pattern should be rejected.)

Note the strong volumes as the stock broke out above its ‘neck line’ (marked by blue line). That technically confirmed the pattern. The 52 level had provided good support during May ‘12, Aug ‘12 and Mar ‘13 (marked by green up arrows). But after 52 level got convincingly breached, it became a resistance level in May ‘13 (marked by red down arrow), and has not been tested since.

Overbought technical conditions have been corrected and all four indicators are still in bullish zones, but looking bearish. Expect some correction/consolidation.

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