Saturday, July 14, 2007

5 India Stocks to Avoid in the Short Term

We have discussed about bullish stocks in my previous articles. Even in bull markets there will be some bearish stocks. Similarly, in bear markets or sideways markets there will be some bullish stocks. In this article let us discuss some stocks which are bearish from a short term perspective.

Aarvee Denims & Exports Limited:

The company is a leading global player in readymade garment industry. The product range includes denim garments like jeans, trousers, shirts, jackets and cotton garments. The spinning capacity of the company is 30 metric tonnes per year, weaving capacity is 72 million metre per year and garment manufacturing capacity is 1.5 million pieces per year.

The company reported a net profit of Rs.30.35 crores in 2006 – 07 at an EPS of 12.35. Why someone would avoid a profit making company then? See the daily chart below.

The stock has kept making lower highs and lower lows in accordance with the elliott wave theory. This indicates bearishness. The support and resistance trendlines are shown in the above chart. Recently, the stock has broken its support trendline. On July 11 it even closed below its horizontal support line. The stock is very bearish; It may be extremely oversold but that will be the case in bear markets. The direction, volume and momentum indicators are very negative. The stock has nothing to offer for those who wish to go long (buy first and sell later). This does not mean that one can short the stock for intra day trading. A stock can be bullish intra day but may be bearish in daily or weekly charts. So the day traders need to be very cautious in shorting stocks that are bearish for short term.

Dish TV India Limited:

This is India’s first direct-to-home (DTH) entertainment service which offers high quality digital TV programmes direct from satellite to the subscriber homes. Some 155 national as well as international digital channels are available. In the financial year 2006 – 07 the company has reported a loss of Rs.252 crores (with negative EPS of 5.9).

Technically what’s wrong with the stock? Let us analyze the price chart.

The support trendline has a positive slope during the uptrend. This was broken on June 5. All was not lost, though. But the most critical support or the horizontal support line was broken on July 11. Watch the resistance trendline with the negative slope. The stock has not been able to pierce this line and close above it. This confirms the bearishness of the stock in the short term.

iGate Global Solutions Limited:

iGate Global Solutions Limited is a Bangalore based IT services company. It is engaged in consulting, IT services, data analytics, enterprise systems, business process outsourcing / business services provisioning, contact center and infrastructure management services. The company has presence among capital markets, mortgage, insurance, manufacturing and retail segment. It posted a net profit of Rs.49.79 crores for 2006 – 07 with diluted EPS of 15.26.

Between 13 December 2006 and 4 January 2007 the stock moved up sharply from 221 to 432 (95%). This was followed by corrective decline upto 340. It has not been able to break its previous high since then. We can see the support line getting broken on 6 July 2007. The last support is at 221. But the stock is likely to test this level too.

We have seen in my earlier article “Sector wise performance : myth or miracle?” that market runs up on the expectation of some positive news. If this does not happen then the interest among investors seems to fade out. As a result the stock keeps falling. In this particular case, the support trendline has been drawn connecting 4 lows. Since this has been broken, we may expect further beraishness.

JB Chemicals & Pharmaceuticals Limited:

The company manufactures speciality pharmaceutical ingredients, herbal remedies and generic drugs. It has markets both within India as well as overseas and it is managed by the Unique group. Some of its brands are: Doktor Mom, Rantac, Metrogyl, Vermorex, Ofloxacin, Dicloran etc. The company has declared a net profit of Rs.62.17 crores with EPS of 7.38.

Both weekly and daily charts are displayed above. This stock has fallen from 139.80 in February 2006 to current low of 69.55 (almost 50%). One more example of a stock losing half its value in this fantastic bull market. Technically this stock is still not fit to enter. In weekly charts, watch the previous support at 74 being broken; in daily chart it has broken its short term support at 71.

Moreover there is a very strong resistance at 84.75 which needs to be comfortably pierced before one can really think of investing or trading in this stock.

Sundram Fasteners Limited:

Sundram Fasteners Limited belongs to the US $3 billion TVS Group based at Chennai. The product range consists of high tensile fasteners, powder metal components, cold extruded parts, hot forged components, radiator caps, automotive pumps, gear shifters, gears and couplings and iron powder. It reported a net profit of Rs.70.90 crores for 2006 – 07 with EPS of 3.37.

One can see the consolidation pattern in the above chart from 19 March 2007. On 10 July it broke its horizontal support and closed below it. The stock is expected to continue the bearish trend. Last support exists at 50.05 in the weekly charts. We will have to wait and see whether this one holds or not.