Adani Enterprises Limited is a holding company that has been in the news a lot recently. Indeed, Real Money's Alex Frew McMillan has covered the Adani story extensively.
An investment company based in New York City -- Hindenburg Research -- released a report on Adani Group founder Gautam Adani's business last week, accusing the group of "brazen stock manipulation and accounting fraud scheme over the course of decades."
Adani was founded in 1993 and is involved with businesses spanning "coal trading, coal mining, oil and gas exploration, ports, multi-model logistics, power generation and transmission, gas distribution, and edible oil and agro commodities."
I had never heard of the company before last week but this high stakes poker game has gotten my attention and reminded me of a firm by the name of Noble Resources that "got over its skis" a number of years ago and I thought a look at the charts of Adani would be worthwhile.
In thw daily bar chart of Adani, below, I can see a very strong uptrend that has made a large "u-turn" since September. Prices have made a top formation since September and have closed below the declining 50-day moving average line and have closed below the 200-day line.
Trading volume has spiked sharply higher in recent days as traders vote with their feet. The trading volume was active in late August to early November ahead of the peak in price in December. The push to the new high in December was not accompanied by an increase in volume and could be considered a bull trap.
The Moving Average Convergence Divergence (MACD) oscillator made a lower high in November well before this story hit. Now the MACD oscillator is below the zero line in sell territory.
In the weekly Japanese candlestick chart of Adani, below, I see a huge (did I say huge?) rally and a quick top reversal with prices closing last week below the 40-week moving average line.
The weekly OBV line has diverged from the price action and the MACD oscillator crossed to the downside for a take profit sell signal in November.
In this daily Point and Figure chart of Adani, below, I can see that prices reached a downside price target in the 3,100 area.
In this weekly Point and Figure chart of Adani, below, I used a five-box reversal filter and here the software shows a price target in the 2,333 area.
Bottom-line strategy: I have no special knowledge of the inner workings of Adani but the charts look vulnerable to further declines. Even though this story is playing out on the other side of the world one should be alert to "unintended consequences."
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