Shankara Building Products was one of the darlings of the market. But now it is a pariah! Typical story of the market! At 2000 you couldn’t have enough of it. At 560 no one wants to touch it!
After it topped in Dec 2017, there have been many, many buy research reports based on the fundamentals of the stock- as seen by the analysts. The targets on such reports ranged from 10% to 35%. But stock had no interest in all these expressions of optimism and has fallen from 2365 to 565 now! And still no signs of a bottom!
Immediate instinct is to ask Why- but does it really matter? Those analysts who wrote all those buy reports post Dec 2017 all had reasons- but none of them worked. So what it really means is that the analysts did not look at the real reason! Or, perhaps, the real reason remains unknown even to this day? Anyway, who cares?
Our job as investors and traders is to see where we can make money. If the bull market in the stock is done, then there is no point in owning it anymore. See the chart attached. I have marked several arrows where clear technical signals were available to tell us that there is something wrong.
The first arrow is on the long range bar decline (7th Dec- 1900-2000) that was the first big selling. Brought prices down to the 21 and 55 day moving averages. One would think this is a “normal “ reaction in a good stock. Then, for a stock that has been so trended thru 2017, it was a surprise to see it consolidate in a small range for next 5 months. The 2 MA confluence near 1725-50 levels breaks by end May 2018 and drops into the 200dma. Around mid May, the RSI shows that the minor rally attempts are unable to work up any momentum. But one can still be forgiven for not turning bearish till here.
Then by mid June, Shankara does a retest rally of the MA levels (with the 200 dma now joining the 21/55dma to act as resistance) and cracks below them around 1665. This was certainly a point to turn bearish. If you didn’t, the stock gave you another chance with a rally to 1675 by mid August. The RSI’s weak, bear phase rally in that move was the clear giveaway. It follows up this second bearish signal with a break of the MA again by 5th Sep around 1450. But do our fundamental friends take notice? No. Why? Because they are not supposed to time the market?
Then it gives you no chances. Drops into a low in October and moves laterally to challenge the MA cluster again. But this time gets rebuffed again in early November at 1090. More declines are being signaled but we actually see 3-4 research reports emerge at this level with targets upto 1490!!! Since then the stock has not stopped and is currently at 560!. Now, one of the companies “drops coverage“!!!! Can you even believe that?
If one had paid attention to price action and used simple tools like the ones shown on the chart, we had signals about 6 months ago around the price of 1665-1700 that one needed to exit longs. This message was repeated three times more, all the way till 1090.
Those who want to nitpick will ask as to why TA did not report this weakness earlier? Answer is simple. Stock is in the delivery segment and one cannot short it. So bearish reports only emerge on stocks in the future segment where one can carry shorts. But one thing is for sure- even a reasonable technical analyst would have stated that the stock is NOT a buy at all!
This chart clearly reflects the power of technical analysis. It is one way of knowing when the talk is not matched by the walk. Bullish views on Shankara abounded in the market but for the last year it has not acted bullish at all. What prevents most people from taking cognisance of this important facet of TA is the possibility of the “reason “ not being available but people need to understand that the Price action itself is reason enough!! If a tiger growls at you, do you really need to understand what it is saying ? The best thing to do is run! Or shoot first. Not to keep saying that the tiger actually wants to be friends with you. The only thing that happens is that you get eaten up. This is what happened to those who insisted on buying Shankara all across 2018.