Earlier this week, a reader of my India market newsletter asked if I could analyze Satyam Computer Services. I prepared these notes on Monday (5th January) based on the weekly and the daily chart. On Thursday morning, I returned from Beijing to find the same stock was front page news. These are the notes prepared three days before the breaking news.
The Satyam daily chart shows very strong down pressure. This is reflected by five features.
The first is the long-term downtrend line. This has defined the fall from the peak of 540 to the support low near 220.
The second feature is the support level near 220. This support level was established by a pile driver pattern low in October. This low was tested and retested in November and December. The combination of the down sloping trend line and the support level creates a
The third feature is the consistent degree of separation between the long-term (GMMA) and the short-term GMMA. This shows a well established downtrend with a low probability of a change in trend direction. The rallies have been weak and easily overwhelmed by consistent investor selling activity. The consistent degree of separation within the long-term GMMA confirms this consistent selling activity.
The fourth feature, most easily seen on the daily chart is the fall in price below the support level on December 17. This was a gap down, a substantial fall to 153 and a very high selling volume. The volume dwarfed all previous volume activity.
This volume behavior sends a clear signal that Satyam is suffering serious problems. This is not a continuation of the down trend. It is a clear acceleration of the downtrend and the continued fall to 114, confirms exceptional selling pressure. The price rise in late December had a very low probability of success.
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The fifth feature is most clearly seen on the weekly chart. This is the down sloping triangle. This is a bearish pattern. It is created by the short-term trend line starting late September and the support level at 220. The downside projection target for this chart pattern is located near 60. This is a high probability target because the gap down opening on December 17 confirms the extreme failure of support.
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