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Wednesday, July 8, 2009

Stock Chart Pattern - Colgate Palmolive India

The 3 years weekly bar chart pattern of Colgate Palmolive India is another example of how strong, well-managed companies in the FMCG sector move according to their own rhythms.

While the rest of the stock market was in a rush to reach a new high, Colgate made a low in early 2007. It then followed the Sensex to make a new high in Jan '08.

But look what happened when the Sensex dropped from 21200 to 7700 - a fall of nearly 64%. Colgate fell only about 35% during this period.

When the Sensex rallied by a little over 100% from 7700 to 15600, Colgate wasn't left far behind, and rose by more than 90%. Now that the Sensex has been in a corrective down move, Colgate is not falling but making new highs.

The stock chart pattern of Colgate is not very different from that of Hindustan Unilever - which is also in a long-term bull market. I leave it as an exercise for readers to draw a parallel up trend channel starting from the high of 2006 and the low of 2007. You will note that this channel got penetrated twice on the up side. Both times the stock chart pattern reverted back to the up trend channel.

The spectacular growth of the Colgates and HULs took place about two decades back - when 1:1 bonuses were a regular feature. Such companies have now become stalwarts that provide steady growth, good dividends, a downside protection during bear phases.

You won't get rich overnight by owning such a stock. But investing a decent percentage of your core portfolio in FMCG and pharma sector will let you sleep well when the bears are on the prowl.

A quick look at the technicals. The OBV continues to move up - showing investor interest shifting from the 'momentum' stocks to safer havens. The MACD is also up sharply and the gap with its signal line is increasing. Both the RSI and slow stochastic are in the overbought zone.

A stock can stay overbought for quite some time. But the fact that the Colgate chart pattern has penetrated above the upward channel means some caution should be exercised. The lower volumes also indicate that the upward move may be slowing.

Bottomline? This isn't the best time to enter the stock. A fall to Rs 500 or so may be a better entry point.


12 comments:

Doctor Universe said...

Thanks Subhankarji for this post on colgate. Your writing always helps me take judicious decisions in investing. Its really great.
I had been looking forward to it. I had some stock at 350levels which I have almost completely offloaded so I was wanting to re-enter. I think you are right 500levels should be ok. Thanks & Best Regds.God Bless you.

Subhankar said...

Thanks, Rajeev.

Hope you're also doing your own research before taking buy/sell decisions!

Technical analysis is not a science - in spite of the name.

Doctor Universe said...

Yes Subhankarji though in my limited fashion. I am learning a lot about cash flows etc these daya after reading your posts at ISG. And yes the risks in investments will be mine. I shall not blame anyone whatsoever. One of my friends works in an allied field and told me that Colgate is holding enough cash on the positive side so the scrip is OK and I bought it then. It is much later that I started reading TA and a bit of "accounts".

rk77 said...

An excellent analysis though a bit late for me to comment. Thanks for being very lucid. Colgate has fascinated me since 1980 when I had to invest Rs 10000 and colgate was at Rs 100. I had no knowledge of share market and 10K was a big sum those days. I chose to play safe and invested the amt in 3 companies recommended by senior - MUSCO, Modi Spg and Vikrant Tyres. The first one was sold off at marginal profit and the other two were duds. By history, Colgate today is still a good buy at 680 or is it too late to buy in?
rk

rk77 said...

Your analysis of Bartronics is great. However, there is a distinct improvement in cash flow (from high negative to low negative), almost all the ratios show improvement. Is that due to the high interest rate debt that has been used to dress up the balance sheet etc? The share is now quoting at around 168. Since you last reviewed this has the situation changed for the better or does it remain a very high risk?

Subhankar said...

Appreciate your comments, Dr Kapur.

Colgate is such a stalwart company that it can be bought at any price. But it is near its all time high - so you may make a token purchase of 25 shares. Once you become an investor, you will be more focussed about tracking the stock (that is the way it works for me!) - and keep adding on dips. Just remember that the glory days of the Colgate stock is over.

Regarding Bartronics, I'm not really convinced about a business model that can't generate cash from its core operations. (Next time, please try to leave your comment on the relevant post - for the benefit of other readers. Thanks.)

rk77 said...

Dear Subhankar,
Colgate hovered at around 680 to 695 for a few days with very little trade and then suddenly there was increase in volumes and a drop in price to 656 suggesting a bear phase. However, very soon the trend reversed and ithas rallied to above 715. Isn't that amazing or as you rightly said that it can be bought at any price? rk77

Subhankar said...

Yes, Dr K.

It is like buying a beautiful piece of jewellery or a lovely painting. You don't buy such stuff to sell. Just keep it for future generations to enjoy.

rk77 said...

Thanks for your advice. I bought 55Colgate@683 avg. After consolidation between 690 and 715 it has resumed its upward march and has crossed 750. Successive tops and bottoms are higher. Crossing previous high suggests a breakout. Those waiting to get in at 500 may have to wait till a bonus or rights issue is announced.

Subhankar said...

Thanks for acknowledging, Dr K.

There is a lot of free advice on my blog. Not sure how many have acted upon it - let alone benefit from it.

From your average price, the stock has risen 10% - good but not great. The bull market in the stock has lasted almost 6 years and the stock is at an all-time high. Technically it is looking overbought. Time for circumspection, not bullishness.

rk77 said...

Can u please put date of the latest review in the list of scrips analysed by you placed on the right side of your blog? This will avoid opening up a link only to find that the report is one year old!

Colgate continues to march ahead belying all technical analysis.
rk77

Subhankar said...

Thanks for the suggestion, Dr K. Regret the inconvenience. I need to spend more time updating my blog regularly.

Colgate's bull market is now two years old and looks like it may last longer. Likewise for ITC.