restrict-user-access domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /home1/portfol1/public_html/wp/wp-includes/functions.php on line 6114A few days earlier, I wrote about Tata Sponge Iron, a outlier in the Metal sector in terms of recent stock performance. Today’s stock, CESC is another outlier as it is hitting multi year highs (the all time high is pretty far for now) on the same day that NTPC (the leading power producer in India) is hitting multi year lows. Tata Power and Reliance Infra aren’t far behind in the race to the bottom.
Its mid cap stocks all the way as many of them continue to test all time highs. Aarti Industries has today moved yet again to its all time high though the last time we tested similar levels, we saw some serious damage to the short term trend before it rebounded in style as it moved 18.2% in this week alone.
Volumes has been pretty substantial when compared to its average trading volume. They key hence will be a close above 110 which should give a nice breakout.
The wonderful thing with technical analysis is as Arthur Conan Doyle wrote in Sherlock Holmes and I quote
“It is a capital mistake to theorize before one has data. Insensibly one begins to twist facts to suit theories, instead of theories to suit facts.”
Depending upon our perceived bias, its easier using technical analysis to get the outcome we desire. So, if I want to showcase why the markets may fall (though it may have been rising day in and day out), I would search for indicators that are showing overbought and since overbought in itself may not be a reason to sell, I will also check whether there is a divergence. Of course, once again, divergence is not a reason, but as long as it suits my view point, what the hell.
There exists a lot of bunkum when it comes to technical analysis, but when challenged, one key answer has always been, “it works for me, so there is something in it”. But its not that technical analysis is itself bunkum as many try to project since there exists ways and means to test a lot of theories and come out with valid observations that can be applied elsewhere too.
For example, while patterns are said to be in the eye of the beholder, there has been some serious amount of testing on the veracity as well as the success / failure of each of the patterns by Thomas Bulkowski who incorporated them in his wonderful book – The Encyclopedia of Chart Patterns. Hence while Chart Patterns are in itself subjective, one can guess the feasibility of such a pattern working or failing and hence applying suitable money management / position sizing algorithm to it.
But to me, the best systems are one where there is zero human discretion and charts are definitely not one of them. Once the human element is introduced, its easy to fall prey to try and fit the curve rather than the curve fitting the pattern on its own.
To conclude, the next time someone claims to predict the market with the help of discretionary tools, do note that the possibility of his bias slipping into his analysis is pretty high and that distorts everything.
Stocks belonging to a sector more or less move in a specific direction with only divergence being in the percentage movement of each stock. Hence if a sector is bullish, the weakest stock would generally move the least while the strongest gains the maximum. On the other hand, when a sector shows bearishness, weak stock tumble much more than strong stocks do.
But its a rarity in itself to find one stock of the sector moving in a direction opposite to the sector as well as all other sector stocks. Tata Sponge Iron is one such stock. While the CNX Metal Index is down 12.4% as on date for the year 2014, this stock is up by 40.5%, a kind of divergence that is not generally seen.
Metal is a cyclical sector which means that unlike say consumption sector, long term gains are hard to come. For example, Tata Steel is available at a price (not adjusted for Dividends) which was seen way back in October 2003. In fact, the stock was available recently for the same price as it traded way back in 1994. Same is the case with most other metal sector stocks as well.
SAIL for example is currently trading at its 1994 price while Hindalco is available at its 1996 price. The only stock belonging to the sector which has given an Investor long term gains is Sterlite which at the time of its merger (and hence delisting of the Original Sterlite) was trading at a price seen in 2006 (Adjusted for Bonus / Splits, Sterlite was available in 2004 for a price of 20 vs 90 which was the price at the time of delisting).
Coming back to Tata Sponge, its tough to visualise how we shall move forward from here. Technically speaking, the stock has just hit its all time high which is bullish and this is being supported by higher volumes as well. Fundamentally, the stock trades at a PE of 7.80 which is nearly half the PE of Nifty. Comparatively the PE of the Industry which it belongs to is at 28.46 making this stock pretty cheap in relative to its peers.
But the sucker lies in the 5 Year EPS growth which comes in at -2.23% which suggests that over the last 5 years, the company hasn’t given much of earnings growth. But then again, this breakout we are seeing is one which is breaking the 2010 high and hence the returns of the stock during the last 4 years has been zero compensating for the low growth / no growth phase.
The trigger for the current rally has been on back of media reports that the government has put on hold the cancellation of coal blocks allotted to the company due to pending court cases. If this turns out not to be true, the probability that we shall see the breakout level of 350 remains pretty high. For now though, its a buy on dip with the ultimate stop being set below 340.
A trend-line break is supposed to showcase the end of a trend. But in case of Geometric, it seems to be a catalyst for a reversal as the stock has sharply moved higher after loitering below the trend-line but at a support zone for some time. While the stock is making a multi-year high, its all time high is a bit higher.
Delivery Volumes has been pretty high today and yesterday though on the negative side, the last time we saw such strong volumes was in October 2012 shortly before the stock topped out.
After consolidating for 2 years (2011 and 2012), the stock broke out of the range in mid 2013. The stock appreciated by 34% in the year just gone by and in just under two months of 2014 has appreciated a further 31%. Today, the stock is once again on the verge of another breakout from a Cup pattern formation. Despite the appreciation that we have seen in the last 8 – 9 months, the pattern breakout suggests a target of 825 which is 36% above the current closing price.
Sugar has been a sector which has been pretty sour to investors for a pretty long time. The trend is still down for most of the stocks in the sector. Renuka is one of the exceptions as it shows a break out of a falling wedge pattern (definitely not a text book case).
Immediate resistance levels are 22.50 and 24.50.
Hat-tip: @bhatswati