Friday, September 18, 2009

Stock Chart Pattern - Tata Chemicals Ltd

The stock chart pattern of Tata Chemicals Ltd, another stalwart from the Tata stable, shows a nice breakout from a bullish consolidation pattern called an 'ascending triangle'.

The company manufacturers a wide array of products including chemicals like soda ash (used in detergents, water and effluent treatment, paper and glass making), sodium bicarbonate (used in pharma industry for making antacids, analgesics, toothpaste), fertilisers (like Urea, DAP, SSP), portland cement (manufactured using the solid wastes generated at its soda ash plant), and packaged salt.

Tata Chemicals has recently acquired a 36% stake in crop protection and pesticides company Rallis India from other Tata group companies, thereby taking its total stake in Rallis to 45%.

Steady growth, low debt/equity ratio, strong cash flows from operations, regular dividend payments make this an ideal 'boring' stock that can find a place in any long-term investor's portfolio.

Time for a look at the one year bar chart pattern of Tata Chemicals:-

Tata Chem_Sep1609

The stock made a double top at 430 in Jan '08 and 440 in May '08, following which the bears really mauled the scrip. It bottomed at 100 in Mar '09. The bull rally took the stock to 266 in Jun '09 - retracing nearly 49% of the bear market fall.

A 3 months period of consolidation in an 'ascending triangle' was followed by an expected upward breakout - thanks to the deluge of FII money into the Indian stock markets this week. But bulls should not start a dance of joy yet.

The stock made a high of 275 and closed at 274 today. There is long-term resistance at the 270-280 zone. Also the 50% Fibonacci retracement level of the entire bear market fall is at 270. The stock has not cleared it strongly enough on higher volumes.

Also note the negative divergences from all four technical indicators. The RSI stopped short of entering the overbought zone. So did the slow stochastic. The MFI is barely above the 50% level. The MACD is marginally positive.

The next few days could be crucial for the stock, and for the market as a whole. If the FII inflows continue, new highs may be the order of each day's trade.

Bottomline? The stock chart of Tata Chemicals has given a mild breakout from a consolidation pattern. Existing investors should wait for the stock to clear 280 before adding more. Patient investors may wait for the next correction to enter.

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