17 NOV 2011            HOME

Several months back I wrote about a crack in the price of India Infoline to act as a indication that the Financial services sector is in trouble as the stock has wide exposure to it. Also the H&S pattern visible here is there on similar stocks of this sector. And this sector has been key to the last business cycle in supporting the growth so its failure would indicate that the economy was indeed in trouble. Today IIFL broke down sharply after kissing its neckline from below so lets see a few charts from the sector.

India Infoline above broke its neckline pulled back to it and is headed lower if the H&S targets were indeed to be achieved the stock would be at 10 Rs. Yes I am being brave. Now lack of past price data might raise some questions about the left shoulder. The reason I considered it is that the same is visible in other stocks of the sector with data especially the next one. Reliance Capital

Because of its downward slanting neckline the neckline is still lower at 234. However we are not far from the 2008 low of 274. If the neckline were to break and its respective target to be achieved then the stock would be at 40Rs or lower. Ouch. I dont know if this works but lets see time is on our side. 

This one is from an early bird of the new sector India bulls. Now some might not consider it a company in the securities business anymore with all its off shoots, but its still a finance company. Head target 9Rs.

The next chart above is of JM Financial. The left shoulder is not so nice as its very small but the fall from the peak has a nice running triangle in wave B as its right shoulder. Prices are sitting on top of the neckline at 15Rs. Target 3Rs.

Above is a long term stalwart of the sector in the south Geojit Financial. Again a very similar pattern and second one that has already broken its neckline at 19.5Rs. The size of the head indicates 2.5Rs.

In this report I have focussed on companies where data is available from at least 2005 so that long term distribution patterns can be identified and also on better known liquid names and most importantly those with H&S structures. There are many more in the sector with other patterns like below M&M financial could sport both a H&S break or maybe a triangular distribution with wave 'E' at the recent high.

The targets discussed appear steep and to some stupid or impossible. However if these necklines are breaking and the said targets are to be achieved the economic environment, that of a Supercycle degree bear market and a Kondratief winter, offers the most suitable time for these things to happen. So it makes sense to watch these trends and stay aware of the possibilities and manage risk accordingly.