Buy these 5 Stocks before the run up

By Sundaramurthy Vadivelu

Disclosure

In my earlier article, “Top Ten Signs a Stock is Going to Move up or down” we discussed about possible technical reasons for stock price movements. One of them was candlestick patterns. These can be used to identify investment and trading opportunties particularly at support and resistance levels.

The most common method used by technical traders to enter ‘long’ positions i.e. (buy first and sell later) is ‘buy on resistance breakout’. We had picked several stocks in my earlier articles based on breakouts. But the risk associated with this method is that the stock can retrace back to support levels. After a correction traders can identify a possible reversal at support level and it can be used to initiate a trade.

The reversals discussed below are based on “Three inside up” candlestick patterns. There have been few theories that candlestick patterns work well in some markets better than others. But, when identified properly and applied correctly, these can be found to work in any financial market. The Japanese have strong belief that candlestick charting is a very powerful analytical technique. I have always used candlesticks in my analysis.

Bombay Dyeing & Manufacturing Company Limited:

Bombay Dyeing belongs to the well known Wadia group. They have diversified businesses in textiles, chemicals, aviation, food and health care industries. The company was established in 1879. Cotton spun yarn dyeing was then carried out manually. Today, this company exports more than 50% of its production to USA, UK, Germany etc. It has presence in all the major continents. The company’s net profits were worth Rs.36 crores in 2006 – 07.

http://groups.google.com/group/theindiastreet/web/BOMDYEING_290807.jpg

In the daily chart shown above, the two downward “gaps” can be noticed. It simply means that there was more supply than demand on those sessions. But invariably, these gaps get closed when the stock reverses. A “Three inside up” pattern i.e. “Harami” pattern followed by a higher close and green candle has been formed. Note the upward gap on the third day. 61.8% retracement works out to be 593.

GTL Infrastructure Limited:

GTL Infrastructure provides necessary infrastructure for mobile phone operators. The entire package includes ground based/roof top towers, microwave racks, cable racks, electrical accessories etc.

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The tower packages are owned by GTL Infrastructure while operators pay monthly or quarterly for using the facilities. The company declared a net profit of Rs.10 crores for the quarter ended June 2007.

A “Three inside up” pattern has been formed in the daily chart of the stock near support level on August 27. The previous high at 38.55 is the first target for the stock during the pull back rally. The technical target is 40.40 which is 61.8% retracement.

Kotak Mahindra Bank Limited:

We discussed about this stock in my previous article, “Hot or Not? Private sector banks on a roll!”. Kotak Mahindra Bank offers total financial solutions to customers, from personal/corporate banking, stock broking, life insurance, investment banking, loans etc. Mahindra & Mahindra have a stake in the bank.

http://groups.google.com/group/theindiastreet/web/KOTAKBANK_290807.jpg

Again, a “Three inside up” pattern has been formed in the daily chart. The previously formed downward gap temporarily acts as minor resistance for the stock. A close above 714 would mean that the 50% retracement is achieved and also the resistance would be broken. Once it happens the stock should be able to test its previous high at 815.

It is important to note that the formation of candlestick patterns in areas other than support or resistance levels may not really reflect a reversal. Hence the first task in deciding whether to enter a trade based on candlestick patterns is to identify support and resistance levels.

Shipping Corporation of India Limited:

The Government of India has about 80% stake in this company. For more than 40 years, SCI owns and operates 35% of Indian tonnage and it has diversified in nearly all areas of shipping business serving both national and international trades. It is the only Indian shipping company operating break bulk service, international container service, liquid / dry bulk service, offshore service, passenger service etc. It also monitors a large number of vessels on behalf of various government departments and organizations. Its net profits were Rs.1014 crores for the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/SCI_290807.jpg

In this stock too, a “Three inside up” pattern has been formed. There are a couple of gaps in the chart, on August 6 and August 10. However they are very minor (less than 0.50% of close price) and may be ignored. 61.8% retracement works out to 207 and this is the technical target for the current pull back rally.

Sunil Hi-Tech Engineers Limited:

Sunil Hi-Tech Engineers Limited is engaged in the fabrication, erection / testing and commissioning of bunkers, boilers, fuel oil systems etc. in the power sector.

It reported a net profit of Rs.7.60 crores during the financial year 2006 – 07.

http://groups.google.com/group/theindiastreet/web/SUNILHITEC_290807.jpg

The stock has more than doubled in the last 3 months. It has not fallen much during the recent correction. In this stock also, a “Three inside up” pattern has been formed. The support trendlines are intact; an indication that the stock is still bullish. On the second day of the candlestick pattern, a “doji” body as been formed. This has more significance, since a harami cross pattern is more reliable than a harami pattern. The stock is likely to test its previous high at 234.90.

Sundaramurthy Vadivelu

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Candlestick Patterns in Indian stock markets Top Ten Signs a Stock is Going to Move up or down Hot or Not? Private sector banks on a roll!

Hot or Not? Private sector banks on a roll!

By Sundaramurthy Vadivelu

Disclosure

The banking system in India is more than 200 years old. The General Bank of India was founded in 1786 (now defunct) was the first ever bank in India. The oldest surviving bank in the country is State Bank of India (SBI), which was established as “The Bank of Bengal” in 1806. Subsequently more banks were in operation, like Allahabad Bank, Punjab National Bank, Bank of India etc.

After India’s independence, the larger commercial banks were nationalized in 1960s to enable the government in controlling credit delivery. By 1995, the liberalization policy of the government allowed private sector participation in banking industry. This was followed by foreign direct investment (FDI) in banks. As of now, there are 28 public sector banks (with Government of India holding a stake), 29 private banks (without Government stake but listed in stock exchanges), 31 foreign banks and plenty of medium and small co-operative banks. The Reserve Bank of India (RBI) is India’s central bank and it is the ultimate authority for control of banking operations.

At both BSE and NSE, several public sector banks (State Bank of India, Punjab National Bank, Indian Bank etc.) as well as private sector banks (ICICI Bank, HDFC Bank, Kotak Bank etc.) are listed.

Let us now discuss the financial and stock performances of some listed private sector banks. Bank of Rajasthan is listed under ‘T’ group in BSE and is not included here.

The following table shows 6 month, one year and 5 year percentage return of these stocks.

For detailed information about close prices on various dates, please click here.

Scrip	6 month return	1 year return	5 year return
AXISBANK	18	68	1,489
CENTBOP	5	58	336
CUB	15	60	610
DCB	45	113	113
DHANBANK	25	196	158
FEDERALBNK	42	71	1,128
HDFCBANK	15	32	434
ICICIBANK	1	50	532
INDUSINDBK	10	16	222
INGVYSYABK	39	83	155
J&KBANK	6	69	658
KARURVYSYA	16	47	367
KOTAKBANK	56	120	1,903
KTKBANK	1	60	413
LAKSHVILAS	7	52	277
SOUTHBANK	36	93	287
YESBANK	14	99	183

It can be seen that NONE of the private sector banks have yielded negative returns in the last 6 months. Axis Bank, Federal Bank and Kotak Bank have appreciated more than 10 times in the last 5 years. Dhanalakshmi Bank, Development Credit Bank, Kotak Bank and Yes Bank have doubled in the last one year.

Bank Nifty (NSE) and Bankex (BSE):

The private sector banks in Bank Nifty and their weightages are given below:

Scrip	Weightage %
HDFC Bank	12.35
ICICI Bank	28.78
Kotak Bank	6.44
Axis Bank	5.52

The private sector banks in BSE Bankex and their weightages are as follows:

Scrip	Weightage %
ICICI Bank	41.91
HDFC Bank	13.35
Axis Bank	5.96
Kotak Bank	4.48
Centurion Bank of Punjab	1.62
Federal Bank	1.23
Karnataka Bank	0.96
Yes Bank	0.65

This amounts to weightages of 53% and 70% for private sector banks in Bank Nifty and BSE Bankex respectively.

Let us now analyze the medium term outlook for Bank Nifty.

http://groups.google.com/group/theindiastreet/web/BANKNIFTY_WEEKLY.jpg

In the weekly chart displayed above, the BANKNIFTY is currently on a corrective decline (wave 4) from a peak of 7209. The first wave had a retracement of 193% i.e. 3414 to 6596. According to Elliott wave theory, the previous high should act as a support when the stock corrects during the five wave pattern. It can be seen in the above chart that it was exactly the case. Bank Nifty managed to close below its previous high of 5074 once and it had bounced back. Similarly the previous high at 6596 should act as a support for the current decline, though it has managed to close below it on two occasions. The Bank Nifty should reverse in all probability soon. The target, when calculated from a low of 4837, works out to 7826 which is a good 1350 points away.

The monthly chart of BSE Bankex is shown below. (Chart courtesy: BSE web site www.bseindia.com)

http://groups.google.com/group/theindiastreet/web/BANKEX_MONTHLY.jpg

There are no reversal signs in the long term chart of Bankex either. The Bankex too, is bullish now. The long term target for BSE Bankex works out to 9784 when calculated from a low of 6047.

Let us now compare two major private sector banks, HDFC Bank and ICICI Bank in terms of Financial performance in the last few years.

http://groups.google.com/group/theindiastreet/web/HDFC_Bank_Performance.jpg

The two banks have performed consistently. HDFC Bank’s income though, is about 1/3 rd of ICICI Bank’s.

http://groups.google.com/group/theindiastreet/web/ICICI_Bank_Performance.jpg

Medium term out look for private sector banks:

We discussed about ICICI Bank in my previous article “5 India stocks to avoid (medium term perspective)”. A “double top” formation in weekly chart means that the stock will struggle to cross its previous high at 1010. The only encouraging factor though, is that it has still not closed below 791 which is its previous low. So, unless we get a confirmation of bullishness we cannot possibly look for investment opportunities in this stock.

Development Credit Bank (DCB) has not broken its previous resistance at 120.55 on a weekly close basis. It has lost about 14% from its highest close and still there is no sign of any reversal on the upper side. Read more about this stock in “The India Street Analyst Upgrades and Downgrades – Review”.

Indus Ind Bank (see weekly chart below), has not broken its resistance at 64. This stock is looking slightly weak in the sector.

The other private sector bank stocks are bullish in medium term charts, though some have lost more than 20% from their highest close. The trendline supports hold well in these charts; there are no major reversal patterns or candlestick patterns either. So we have to conclude that these stocks would be heading for higher levels.

http://groups.google.com/group/theindiastreet/web/INDUSINDBK_WEEKLY.jpg

Indus Ind Bank, as shown above, is struggling to break its previous resistance at 64. But it is forming higher highs and higher lows though.

Conclusion:

Except for ICICI Bank, DCB and Indus Ind Bank, the rest of the private sector banks remain bullish; Medium term investors can hold these stocks for some more time.

Sundaramurthy Vadivelu

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