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Friday, June 20, 2014

Technical update – 6 Housing Finance stocks

During the past couple of years, high interest rates, slow economic growth and inflation took a huge toll on the performance of most companies in general, and rate-sensitive companies in particular.

Commercial real estate business took a beating. Even residential real estate business suffered. So, it is no surprise that housing finance companies felt the heat of the slowdown.

However, there are always one or two companies in each sector that manage to stand out from the rest due to their transparency and efficiency of operations. Those are the companies that long-term investors should consider including in their portfolios. 

Can Fin Homes

CanFinHomes_Jun1914

The stock price of CanFin Homes was drifting sideways around the 105 level before rising sharply to touch a high of 182 in Jan ‘13. It then entered a year-long period of consolidation, forming a bullish ‘saucer’ pattern that touched a low of 114 in Aug ‘13.

After completing the ‘saucer’, the stock price rose quickly to touch a high of 365 earlier this month – gaining a huge 220% in less than a year. Such a sharp up move is difficult to sustain. The stock appears to be forming a head-and-shoulders reversal pattern that can drop it below 300 to its 50 day EMA, or even lower.

Dewan Housing Finance

DewanHsgFin_Jun1914

Dewan Hsg Fin stock formed a small double-top reversal pattern at 220 in Jan ‘13, and dropped all the way to 103 in Sep ‘13 – losing more than 50% from its high. A ‘V’ shaped recovery took the stock price to a new high of 237 in Jan ‘14. The stock regained all its losses over the previous 9 months in 4 months to enter a bull market.

Three months of sideways consolidation was followed by a sharp rally to a high of 373 earlier this month – a gain of more than 250% from its low. The stock appears to be forming a head-and-shoulders reversal pattern that can drop it to 250 or lower. Note that RSI has completed a head-and-shoulders pattern, and Slow stochastic has formed a double-top pattern. ROC touched a much lower top.

GIC Housing Finance

GICHsgFin_Jun1914

The stock of GIC Hsg Fin touched a high of 149 in Jan ‘13 and a low of 80 in Aug ‘13. For the next 7 months, the stock struggled to return to bull territory before finally managing to do so in end-Mar ‘14. The subsequent rally was swift.

The stock price touched a new high of 174 earlier this month – more than doubling from its Aug ‘13 low – but overbought conditions led to a correction down to 154, where it is trying to find a bottom. If 154 gets breached, the stock may drop to 140.

GRUH Finance

GruhFin_Jun1914

The price chart of Gruh Fin is a clear stand-out. It has been in a bull market right through the slowdown. Note that during a 13 months long sideways consolidation within a ‘rectangle’ pattern, the 200 day EMA kept rising – indicating that the eventual break out from the ‘rectangle’ would be upwards.

Rectangles are usually continuation patterns, but tend to be unreliable. So, it is better to wait for the break out. Note that the break out in end-Dec ‘13 was followed by a pullback to the top of the ‘rectangle’ a month later. The subsequent parabolic rally touched a high of 203 (adjusted for bonus and split). The stock is undergoing correction, and may drop to 180.

HDFC

HDFC_Jun1914

HDFC stock is a favourite of FIIs, and has been in a bull market technically despite a sharp drop from a high of 924 (in May ‘13) to 654 (in Aug ‘13). Note that the stock price drops below its 200 day EMA periodically – providing adding opportunities.

After touching a new high of 978 earlier this month, the stock is correcting a bit. Being a large-cap and FII-owned company, it does not give spectacular returns like a small-cap or mid-cap company, but is one of the best stocks to own because of its transparency and consistent performance year after year.

LIC Housing Finance

LICHsgFin_Jun1914

Though a favourite of many small investors, the chart of LIC Hsg Fin doesn’t inspire confidence. From a high of 295 (in Jan ‘13), the stock dropped to 157 (in Aug ‘13). After forming a small double-bottom reversal pattern, the stock price struggled for the next 6 months to enter bull territory.

Once it broke out above all three EMAs in Mar ‘14, it rose rapidly to touch 345 earlier this month, but seems to be forming a head-and-shoulders reversal pattern. The downside target is 280.

All 6 stocks are undergoing bull market corrections, which means they are providing adding opportunities. But please don’t forget to do your due diligence before deciding to buy/sell.

2 comments:

Anand Reddy said...

Can you please provide chart for Repco Home Finance too?

Thanks,
Anand

Subhankar said...

Hi Anand

Sorry - can't comment on Repco Home chart because of insufficient data.