The commentary like this is totally *bs*. To look at the event after it has happened and finding out clues is a really stupid thing to do. But what interests me here in this exercise and compels me are the BIG clues that we all missed out.
Just checking on charts of Indian IT companies here: Wipro, Infosys, TCS, Patni, HCL, Polaris, and Satyam. The charts of other infotech companies are most so one dimensional that it does not lend itself to much commenting. Since, I have not watched the IT sector or its stocks for a long time, its time to catch up too.
Note: All charts do not include the price movements of today, which have been extreme for Satyam, to say the least. This would help us take a look as of yesterday.
Note: You will see some selling or distribution happening in top IT counters for past 2 months. The pertinent questions to ask is were these events of Satyam revelations, Satyam blacklisting known to market players. It is easy to say, it could have been anticipated, but the scams of this magnitude, especially when it involves deceiving the financial community, could not have been carried on in isolation.
TCS
TCS is the perhaps the strongest of IT stocks, technically. Movements are flattish. But the flat movements it has seen over the year could also be due to the steady distribution, which is perhaps less likely.
TCS made its first top with a double-top in April/June; made a very flat head and shoulders; with the right shoulder ending in double-top. Whenever the right shoulder ends in a double-top, the price movement on the downside is pretty sharp, if the h&s gets confirmed. H&S was confirmed when the prices broke below 750 levels. The bearishness and liquidation is evident from the fact there was just a faint pretension of testing the neckline.
Further TCS is making a kind of declining triangle with 450 as base. If the base is broken then another round of downfall is imminent. If you look closely this pattern is very similar to Satyam (later) consolidating in November. This is in no way to say, TCS will crack up like Satyam, but just to highlight TCS just may break below 450 too. We just can’t be sure of supports now.
Infosys
Infosys is perhaps the most active player, the biggest player and is usually considered the mouth-piece of the Indian IT sector. Infosys is a good creation of marketing and hype just as it is on its capabilities and conservative style of management.
The chart of Infosys is very much self evident with an H&S clearly formed and confirmed. What interests, is the Descending triangle that is being created over past two months. A clear sign of liquation or smart selling. The prices have held above the support of 1100, which has become crucial now. A break below the 1100 would take it to three-figure levels.
Wipro
Among the Big3, Wipro has perhaps the weakest chart. That’s strange because Wipro has a low float, so hence shorting is not an easy trick.
Wipro made a clear rounding top from March to July gave a decent retracement to above 450. The retracement ended with a double top, which should have given us enough indications that bulls were clearly not in control. This is during the same time as TCS made its double-top in its right-shoulder. Since, its fall Wipro has made a consolidation that has helped in taking off the momentum, but the pattern being consolidated is a triangle - (usually) a continuation pattern. Therefore, it probably implies Wipro would fall further to newer lows or atleast make an attempt to confirm the bottom close to 200s
Satyam
To be honest, it would have been very much impossible to guess Satyam would fall this much. Yes, it made a prominent head and shoulders; promptly hit its target areas and made a brief consolidation in November. Then surprisingly, all the hell broke loose and the consolidation was broken turning it into something of a flag. Though still no targets for the bottom could be made, going by its long term supports the levels of 120 and 60 were prominent. This huge difference was due to the lack of any recent supports at these levels. Satyam was not seen at these levels for a long time, and had no idea how they would react to these levels. Of course, 100 was a psychological support too.
As they say what happened in Satyam was way off the charts. The trend was too well established on the downside but even that could not have foreseen such a vertical fall.
So, laying all the blame on Ramalingam Raju's doorsteps, Technical analysts can rest easy. They can bring Naseem Taleb’s Black swans for more help
HCL Tech
HCL is probably the weakest one among the big companies. The expanding bias in HCL is clearly evident when it broke below its previous bottom of 225 in July. This should have given the clear sell signals or short-signals. After recovering about 50% from the July lows, it clearly cracks, now confirming the expanding bias. And typical to ET, the price crashes in near straight line. Lots of investors would have been caught in the 'lowness' of the prices, this is evident in the Falling wedge formation that we see it forming during its fall.
As it stands in the morning, the prices are clearly trending down except for the break in the wedge line on the upside. But even with that we would have expected selling at around 160 levels. Broadly, the prices are stable until the prices stay above the supporting trendline that is drawn in bold and also acts as the support of the wedge. Any break in the trendline would create some serious liquidation.
Patni
Among the second rung players, Patni is perhaps the important one. Patni made some cute looking formations, unfortunately they were all bearish. But for the technical person it was a clear exit signal and person still holding after these were plain non-techies.
Patni made a rounding top in the 2 quarter of the year stretching from March bottom to June bottom. This was followed by a short retracement in July. This was followed by a retest of the neckline or the trendline of the inverted cup and handle. The prices did not immediately break through the neckline but held on to the neckline in a pretty funny manner. A very close range just above the neckline and below a very well defined resistance. It is a clear sign the smarter folks were distributing the stock before the price were to crash through the necklines.
Once the price cracked the neckline, it has been a pretty boring downfall. Recently it made a sort of double bottom, I would guess, on back of the similar pattern in Sensex / Nifty and other indices.
The stock looks pretty ok, not as scary as Satyam but will hit very hard resistances on the upside, especially around 200.
Polaris
Well, Polaris chart is cuter than Patni. Cuter because while it is bearish, charts were literally shouting 'sell'. Ok, with lot of support from hindsight we are now sure it was 'sell'.
In practice, Polaris chart was the dicey play to bet on. The dicyness is pretty much evident in the expanding bias the chart takes after a long time, pretty much 3 quarters.
What started as a rounding top or nearly one was entirely retraced. This in practice should have helped the bulls take out the stops above the 'top' and create a new top. But what happened was it was effectively blocked near the top and the distribution began with earnest. (Rounding tops too are excellent distribution patterns) After a trapezoidal/rhombus or whatever formation it created, it must have created enough confusion for the investor as to the direction of the breakout. For the persons clued into the fundamentals and economics, it may have been pretty easy decision to make - down. The stock cracked through a small h&s pattern (probably sometime close to Fannie Mae, Freddie Mac and other colossal crises).
What's makes this stock more interesting to watch for is that it break right below the possible low of expanding triangle. Given the nature of ET, I would not like to jump into any conclusion as to what would happen. But there are two guesses for sure: one, if it bottoms out here we can see a bounce atleast to about 50% of the fall, more likely to the levels of 70; two, it could crack further. If it cracks further on a bearish mode, it will put huge pressure on the company to stay overboard.
This exercise is of no practical use in saving the IT investors and particularly Satyam investors. But this is just a take on how things can really fall apart. I haven't looked at it from a long term (weekly) perspective, which may give us the indication on where we are headed in future. But for those of you who have watched this blog grow, you know well, we are expecting a fall in NASDAQ sometime in future.
Just checking on charts of Indian IT companies here: Wipro, Infosys, TCS, Patni, HCL, Polaris, and Satyam. The charts of other infotech companies are most so one dimensional that it does not lend itself to much commenting. Since, I have not watched the IT sector or its stocks for a long time, its time to catch up too.
Note: All charts do not include the price movements of today, which have been extreme for Satyam, to say the least. This would help us take a look as of yesterday.
Note: You will see some selling or distribution happening in top IT counters for past 2 months. The pertinent questions to ask is were these events of Satyam revelations, Satyam blacklisting known to market players. It is easy to say, it could have been anticipated, but the scams of this magnitude, especially when it involves deceiving the financial community, could not have been carried on in isolation.
TCS
TCS is the perhaps the strongest of IT stocks, technically. Movements are flattish. But the flat movements it has seen over the year could also be due to the steady distribution, which is perhaps less likely.
TCS made its first top with a double-top in April/June; made a very flat head and shoulders; with the right shoulder ending in double-top. Whenever the right shoulder ends in a double-top, the price movement on the downside is pretty sharp, if the h&s gets confirmed. H&S was confirmed when the prices broke below 750 levels. The bearishness and liquidation is evident from the fact there was just a faint pretension of testing the neckline.
Further TCS is making a kind of declining triangle with 450 as base. If the base is broken then another round of downfall is imminent. If you look closely this pattern is very similar to Satyam (later) consolidating in November. This is in no way to say, TCS will crack up like Satyam, but just to highlight TCS just may break below 450 too. We just can’t be sure of supports now.
Infosys
Infosys is perhaps the most active player, the biggest player and is usually considered the mouth-piece of the Indian IT sector. Infosys is a good creation of marketing and hype just as it is on its capabilities and conservative style of management.
The chart of Infosys is very much self evident with an H&S clearly formed and confirmed. What interests, is the Descending triangle that is being created over past two months. A clear sign of liquation or smart selling. The prices have held above the support of 1100, which has become crucial now. A break below the 1100 would take it to three-figure levels.
Wipro
Among the Big3, Wipro has perhaps the weakest chart. That’s strange because Wipro has a low float, so hence shorting is not an easy trick.
Wipro made a clear rounding top from March to July gave a decent retracement to above 450. The retracement ended with a double top, which should have given us enough indications that bulls were clearly not in control. This is during the same time as TCS made its double-top in its right-shoulder. Since, its fall Wipro has made a consolidation that has helped in taking off the momentum, but the pattern being consolidated is a triangle - (usually) a continuation pattern. Therefore, it probably implies Wipro would fall further to newer lows or atleast make an attempt to confirm the bottom close to 200s
Satyam
To be honest, it would have been very much impossible to guess Satyam would fall this much. Yes, it made a prominent head and shoulders; promptly hit its target areas and made a brief consolidation in November. Then surprisingly, all the hell broke loose and the consolidation was broken turning it into something of a flag. Though still no targets for the bottom could be made, going by its long term supports the levels of 120 and 60 were prominent. This huge difference was due to the lack of any recent supports at these levels. Satyam was not seen at these levels for a long time, and had no idea how they would react to these levels. Of course, 100 was a psychological support too.
As they say what happened in Satyam was way off the charts. The trend was too well established on the downside but even that could not have foreseen such a vertical fall.
So, laying all the blame on Ramalingam Raju's doorsteps, Technical analysts can rest easy. They can bring Naseem Taleb’s Black swans for more help
HCL Tech
HCL is probably the weakest one among the big companies. The expanding bias in HCL is clearly evident when it broke below its previous bottom of 225 in July. This should have given the clear sell signals or short-signals. After recovering about 50% from the July lows, it clearly cracks, now confirming the expanding bias. And typical to ET, the price crashes in near straight line. Lots of investors would have been caught in the 'lowness' of the prices, this is evident in the Falling wedge formation that we see it forming during its fall.
As it stands in the morning, the prices are clearly trending down except for the break in the wedge line on the upside. But even with that we would have expected selling at around 160 levels. Broadly, the prices are stable until the prices stay above the supporting trendline that is drawn in bold and also acts as the support of the wedge. Any break in the trendline would create some serious liquidation.
Patni
Among the second rung players, Patni is perhaps the important one. Patni made some cute looking formations, unfortunately they were all bearish. But for the technical person it was a clear exit signal and person still holding after these were plain non-techies.
Patni made a rounding top in the 2 quarter of the year stretching from March bottom to June bottom. This was followed by a short retracement in July. This was followed by a retest of the neckline or the trendline of the inverted cup and handle. The prices did not immediately break through the neckline but held on to the neckline in a pretty funny manner. A very close range just above the neckline and below a very well defined resistance. It is a clear sign the smarter folks were distributing the stock before the price were to crash through the necklines.
Once the price cracked the neckline, it has been a pretty boring downfall. Recently it made a sort of double bottom, I would guess, on back of the similar pattern in Sensex / Nifty and other indices.
The stock looks pretty ok, not as scary as Satyam but will hit very hard resistances on the upside, especially around 200.
Polaris
Well, Polaris chart is cuter than Patni. Cuter because while it is bearish, charts were literally shouting 'sell'. Ok, with lot of support from hindsight we are now sure it was 'sell'.
In practice, Polaris chart was the dicey play to bet on. The dicyness is pretty much evident in the expanding bias the chart takes after a long time, pretty much 3 quarters.
What started as a rounding top or nearly one was entirely retraced. This in practice should have helped the bulls take out the stops above the 'top' and create a new top. But what happened was it was effectively blocked near the top and the distribution began with earnest. (Rounding tops too are excellent distribution patterns) After a trapezoidal/rhombus or whatever formation it created, it must have created enough confusion for the investor as to the direction of the breakout. For the persons clued into the fundamentals and economics, it may have been pretty easy decision to make - down. The stock cracked through a small h&s pattern (probably sometime close to Fannie Mae, Freddie Mac and other colossal crises).
What's makes this stock more interesting to watch for is that it break right below the possible low of expanding triangle. Given the nature of ET, I would not like to jump into any conclusion as to what would happen. But there are two guesses for sure: one, if it bottoms out here we can see a bounce atleast to about 50% of the fall, more likely to the levels of 70; two, it could crack further. If it cracks further on a bearish mode, it will put huge pressure on the company to stay overboard.
This exercise is of no practical use in saving the IT investors and particularly Satyam investors. But this is just a take on how things can really fall apart. I haven't looked at it from a long term (weekly) perspective, which may give us the indication on where we are headed in future. But for those of you who have watched this blog grow, you know well, we are expecting a fall in NASDAQ sometime in future.
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