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