Since Rs.544 (May08) the stock was falling in perfectly parallel channel. Till yesterday, the price was being supported / resisted exactly on the lower/upper end of this channel (marked by arrows).
Even well before the ‘Maytas’ saga unfolded, the trend was completely bearish and on this ‘bad news’ price just went down (from middle of the channel) to lower end of the channel (Rs.114). Remember that from this channel support it went up 64%, but could not even touched the upper end of the channel (otherwise it could have been bullish implications) before resuming (final?) downtrend.
In short, the bearish trend was intact (since Rs.544) & nowhere in this journey the price has actually shown any kind of strength OR even attempt to break the channel upward (after Nov 08) thereby indicating reversal in the trend.
Quarterly Chart:
At the recent top the stock had formed Head & Shoulder bearish reversal pattern on “quarterly charts” (Mar 06 to June 08), suggesting reversal in the earlier trend (from bullish to bearish). The formation was taking place since Mar 06 to June 08, and given break out signal (bearish) only in Sep 08 quarter.
In just 2 quarters (Dec 08) the price was hammered down to Rs.114. And now in this quarter the price is already down below Sep 2001 level & might saw the final selling climax.
Remember that this reversal pattern (H&S) was quite visible on many world indices including Sensex (see my old reports send in July/August).
Monthly Chart:
When the stock price retraces 89% value (since its recent top) normally such stock/index witnesses a prolong bearish faze lasting for several years. In 1929 the Dow Jones had fallen by 89% (popularly known as ‘.11%’ theory).
Post NASDAQ meltdown, the Satyam computer had fallen by 89% at Rs.79(from Rs.723), however managed to stay afloat above this price level (even after second attempt) indicating strong underline fundamental strength of the company. Subsequently the stock price went up by whopping 575% in 5 years.
Now the current price is already below Rs.79. Even if you take 89% drop from the recent market top of Rs.544, the 11% level is Rs60. Is the price is suggesting complete “loss of fundamental value”? I think you are aware of this.
::·Price discounts everything in advance (known & unknown things/facts).
::·History repeats. Enron, Bears Stern, Lehman, Merrill Lynch, CRB Capital and every other company who went bust had invariably shown adverse stock price movements well before the things are revealed/known to the public. General Motors had created “Double top” bearish reversal pattern way back in 2000, eight years ahead of its bankruptcy.
::·Fundamental analysis/Balance sheet analysis has several limitations & you can’t protect your capital/profits by looking these numbers.
::·In uncertain times intermediaries like Research houses/Economist/Brokers/Mutual funds/Media is normally “too late” in saving your hard earned money. (E.g. when the stock markets tanked by more than 30-35% rating agencies make noise about downgrade etc. No one had downgraded “India” or “Real Estate Sector” when the Sensex was trading at 21k, but everyone joined the race (to take credit) when the Sensex lost more than 50% value.
::·It’s a myth that Technical analysis works only for the short term or for trading views. In fact it works efficiently even for the long term/strategic investments also.
::·“Smart money” has already dumped the stock well before the “fundamental” bad news came into “Public” domain. Normally it’s “too late when things are known to Public”. When the stock price is falling unabatedly (from Rs.544) do you think there were no insiders who were aware of this? Then who was selling?
::·Remember that financial market is nothing but WAR. So it’s foolish to think that “innocent” stock holders have lost the money.
