After a strong run in 2009 and 2010, Indian stocks, as represented by the India Fund, Inc. (NYSE:IFN) ETF, have been decimated. The ETF invests in the public equity markets of India and its performance is mirroring that of several other foreign market ETFs. One of the reasons for the recent declines can be attributed to the recent strength in the U.S. dollar, but there seems to be more at play. It seems that trust in foreign stocks has been waning on the heels of several charges of fraud against Chinese stocks, and of course, the contagion risk associated with several European stocks amidst their own financial crisis.

Looking more closely at IFN, it is clear that the ETF is in a steady downtrend spanning several months. IFN has been setting progressively lower lows and lower highs, as each rally has been a selling opportunity. Notice how the 50- and 200-day moving averages are perfectly aligned in a downtrend. This is a clear sign that the primary trend is lower. Volume has been gradually building, which could be viewed as a positive, but until IFN can set a higher high, it has to be considered a shorting opportunity on any strength. (For more, see Moving Averages: Introduction.)

Infosys Limited (Nasdaq:INFY) is an Indian IT consulting company that has been in a steady decline since topping out in early 2010. It is also in a clear pattern of lower lows and lower highs. INFY has been rejected in the past two tests of its 200-day moving average, as sellers overcome buyers. INFY is in a key area as it tries to form a higher low near $50, but still has a long way to go before seriously challenging for a higher high near $62. In fact, any weakness in the coming days could lead to a test of support near $46.

Indian online Internet company, Rediff.com (Nasdaq:REDF), is also near a key area on its chart. While it has lost over 50% of its stock value in the past few months, it remains in a large consolidation pattern and hasn't quite broken down yet. REDF has been gradually setting lower highs, but has had a solid floor underneath it. It will be interesting to see if REDF will once again find buyers near $7, as it has for most of 2011. The stock has not rallied at all recently, while the markets showed some strength and could be close to rolling over. Any sustained weakness under $7 would likely imply a test of the October lows near $5. (For related reading, check out 5 Indian Stocks To Consider.)

Sify Technologies Limited (Nasdaq:SIFY) is following an almost identical pattern to REDF. It has been in a consolidation despite being chopped in half from its April highs to current prices. It has been finding support at about $4 per share since the consolidation began and is currently just above that level. After months of dying volatility, SIFY should be close to a more substantial move as it reaches the apex of the triangle it has been following. A move to either direction should be worth trading.

The Bottom Line
Indian stocks have clearly been heading lower for the past several months and are showing very few signs of letting up. Many of these stocks are at critical areas on their charts, and if they don't find support soon, they could be headed much lower. While there is a sliver of hope that these stocks could find support soon, it will take much more work before they can become healthy. If they do in fact head lower, it could point to a dismal 2012 as well. (For more, see Technical Analysis: Introduction.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Charts courtesy of stockcharts.com

At the time of writing, Joey Fundora did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Trading Strategies

    How To Buy Penny Stocks (While Avoiding Scammers)

    Penny stocks are risky business. If want to trade in them, here's how to preserve your trading capital and even score the occasional winner.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI South Africa

    Learn more about the iShares MSCI South Africa fund, which is an NYSE-listed exchange-traded fund offered and managed by BlackRock.
  3. Chart Advisor

    Stocks to Short...When the Dust Settles

    Four short trades to consider, but not quite yet. Let the dust settle and wait for a pullback to resistance for a higher probability trade.
  4. Technical Indicators

    Using Moving Averages To Trade The Volatility Index (VIX)

    VIX moving averages smooth out the natural choppiness of the indicator, letting traders and market timers access reliable sentiment and volatility data.
  5. Mutual Funds & ETFs

    ETF Analysis: iShares MSCI EAFE Small-Cap

    Read an in-depth analysis of the iShares MSCI EAFE Small-Cap Fund, a well-managed exchange-traded fund that tracks small-cap international stocks.
  6. Mutual Funds & ETFs

    ETF Analysis: Vanguard Global ex-US Real Estate

    Take an in-depth look at the Vanguard Global ex-U.S. Real Estate ETF, an international property fund tilted toward Asian markets.
  7. Economics

    Is the Yuan a Yawn or a Nightmare for Investors?

    China’s decision to change the method of setting its currency exchange rate caused global shock waves last week.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares International Select Dividend

    Learn how the iShares International Select Dividend ETF provides investors an opportunity to gain exposure to high-quality companies outside the United States.
  9. Chart Advisor

    Strategizing for a Market Fall...or Rally

    The downtrend isn't confirmed yet, so be prepared with trades for whether the stock market rallies or continues to fall. Here's how to do it.
  10. Economics

    Signs of a Struggling Economy?

    Last week was another difficult one for stocks, marked by a bruising mid-week selloff triggered by China’s surprise devaluation of its currency. 
RELATED TERMS
  1. Brazil, Russia, India And China ...

    An acronym for the economies of Brazil, Russia, India and China ...
  2. Optimal Currency Area

    The geographic area in which a single currency would create the ...
  3. European Sovereign Debt Crisis

    A period of time in which several European countries faced the ...
  4. Fintech

    Fintech is a portmanteau of financial technology that describes ...
  5. Indicator

    Indicators are statistics used to measure current conditions ...
  6. Intraday Momentum Index (IMI)

    A technical indicator that combines aspects of candlestick analysis ...
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. How are double exponential moving averages applied in technical analysis?

    Double exponential moving averages (DEMAS) are commonly used in technical analysis like any other moving average indicator ... Read Full Answer >>
  3. How do you know where on the oscillator you should make a purchase or sale?

    Common oscillator readings to consider making a buy or sale are below 20 or above 80, respectively. More aggressive investors ... Read Full Answer >>
  4. What are the alert zones in a Fibonacci retracement?

    The most commonly used Fibonacci retracement alert levels are at 38.2% and 61.8%. A 50% retracement level is also commonly ... Read Full Answer >>
  5. How was the Fibonacci retracement developed for use in finance?

    The use of Fibonacci retracements in stock trading was popularized by noted technical analysts W.D. Gann and R.N. Elliott. ... Read Full Answer >>
  6. How was the stochastic oscillator developed?

    The history of the stochastic oscillator is filled with its own controversies and inconsistencies. Most financial resources ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!