Wednesday, August 15, 2007

5 India stocks to avoid (medium term perspective)

In this article let us discuss some stocks which look technically bearish for medium term. The analysis is based on weekly charts.

Allcargo Global Logistics Limited:

In my earlier article 5 India stocks to avoid (short term perspective) we discussed about Gateway Distriparks Limited, a logistics facilitator company. Allcargo Global Logistics too, is a logistics service provider. This company’s key areas of operations include multi-modal transport, container freight stations, project cargo handling, airfreight and transport logistics. It declared a net profit of Rs.17.11 crores for the quarter ended June 2007.

This stock was issued at an IPO price of 675. After it got listed in June 2006 the stock touched a high of 1355 in January 2007, twice its issue price. Watch the descending triangle breakout in the chart. From the high of 1355, it made a low of 950. Some sideways movement occurred and it just broke the support in June. However, it managed to bounce back a little but the rally could not be sustained. It has once again breached the support at 950 and closed below it for two weeks in a row. The triangle height is 405 and the bearish target works out to 545. It however may get some support at 675, being the issue price.

Hindustan Sanitaryware and Industries Limited:

Hindustan Sanitaryware and Industries Limited was set up in 1962 in collaboration with Twyfords of United Kingdom. As the name implies, it specializes in manufacture and export of sanitary equipments and materials. The product range includes sanitaryware, bath fittings, tubs, shower enclosures, whirlpools and kitchen fittings, shower partitions and panels, kitchen appliances and sinks. The company’s net profit for the first quarter ending June 2007 was Rs.6.44 crores.

This stock has already fallen from a high of 195 in May 2006 to a low of 85.50 in June 2006 i.e. a loss of 56%. The stock has not been able to cross 127.50 on a close basis (61.8% retracement from high of 195). As in the case of Allcargo, a descending triangle breakout has occurred with a triangle height of 45. The stock has managed to close below support for 4 weeks in a row. The bearish target works to 38.

ICICI Bank:

The India Street analyzed ICICI Bank IPO. I had mentioned that:

“In the monthly chart displayed above, clearly, the stock is in its 5th wave. It will find strong resistance to cross 1010. According to the wave theory, a correction should start after the completion of 5th wave, which of course needs a confirmation.”

Indeed, the resistance at 1010 could not be penetrated conclusively by the stock. Moreover, the stock has just broken its support trendline and closed below it last week. Ideally, this would be a “double top” formation. A weekly close below 791 (which also happens to be 38.2% retracement) would confirm the formation of double top pattern. Watch the volumes soar as the stock breaks the support trendline. As of now, the momentum, volume and directional indicators also favour further bearishness. The last support exists at 656 i.e. 61.8% retracement level.

Raymond Limited:

Raymond Limited has about 60% market share in worsted fabric industry in India and one of the largest integrated fabric manufacturers in the world. It has textile, engineering tools and aviation divisions. Its range of brands include Manzoni, Park Avenue, Colorplus, Parx, Be:, zapp, Notting Hill etc. Its group companies J.K. Files & Tools and Ring Plus Aqua Limited are engaged in the manufacture of precision engineering products such as steel files, cutting tools, hand tools, agri tools and auto components. Raymond is one of the first corporate houses in India to launch air charter services in India in 1996. It has declared a net profit of Rs.5.37 crores for the first quarter ending June 2007.

It can be seen that the stock had fallen from a high of 630 in mid May 2006 to a low of 286.50 in mid June 2006 or about 55% within one month. It somehow managed to close above its 50% retracement of 458.85 on two occasions; but never closed above 61.8% retracement. Recently it has broken its strong support at 286.50 and closed below it. Watch the volumes going up as the support levels were reached. Though extremely oversold in medium term charts, directional and volume indicators favour further downside.

Ucal Fuel Systems Limited:

Ucal Fuel Systems Limited manufactures automobile fuel system components like throttle body assembly, fuel rail assembly, high pressure fuel filter, carburettor, oil/water/vacuum pump assembly, piston cooling nozzle etc. Some of its clients are Maruti Udyog, Hyundai, General Motors, Cummins, Bosch, TVS Motor, Bajaj Auto, Yamaha and Hero Honda. The company posted a net profit of Rs.1.69 crores for the quarter ended June 2007.

In May 2005 it made a high of 291.70. After the double top formation, it has become extremely bearish. It achieved a low of 90 in June 2006. Now it has broken that support and closed below it for 3 weeks in a row. No real buying support is available from the market for this stock at the moment.