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Thursday, August 20, 2009

Stock Chart Pattern - Bilcare Ltd

The stock chart pattern of Bilcare Ltd is almost a mirror-image of the Sesa Goa chart pattern we looked at yesterday. Sesa Goa had moved up to make a new all-time high. Bilcare is struggling to get out of the bear market. Let us find out why.

Bilcare Ltd can best be described as a pharmaceutical ancilliary company. Starting out in medicine packaging, they have now morphed into a clinical trial supplies, services and project management company, with offices in USA, UK and Singapore.

Their related services include solutions for compliance and brand protection issues, as well as educational programmes to create a pool of clinical trial technicians.

Consolidated sales in Mar '09 grew 31.5% to Rs 856 Cr and EBITDA grew 19% to Rs 194 Cr. With good growth, positive cash flows from operations, regular dividends, P/E < 11, P/BV < 2, Debt/Equity < 1 - this is an almost perfect example of Graham's 'value pick' criteria.

So why is the stock languishing? Two words: Rakesh Jhunjhunwala! The big bull, a big shareholder and director, recently resigned from his directorship in the company and sold a part of his stake. That was a trigger for the bears, who had already mauled the stock, to launch a renewed attack.

The 1 year stock chart pattern of Bilcare Ltd is a clear example why a stock chosen on the basis of fundamental analysis alone can become a 'multi-sagger' :-

Bilcare_Aug2009

The stock had made a low of 275 on Jun 14, '06. It then climbed dizzily all the way to a bull market top of 1830 on Jan 1, '08 - only to give up the entire gain as it dropped like a stone to a low of 279 on Mar 9, '09. Such a 'mountain-like' pattern makes it very difficult for any stock to recover its former glory.

The stock rallied with the rest of the market on sharply higher volumes and briefly went above its 200 day EMA, as it made a high of 549 on Jun 4, '09. The correction started almost immediately, and the long-term average quickly turned into a strong resistance level.

The efforts by the stock to remain above its 50 day EMA has also been thwarted, and now the medium-term average has switched from a support level to a resistance level.

The MFI is below the 50% level and moving down. The slow stochastic has just slipped below the 50% level and the %K line is below the %D. Of late, down-day volumes are higher. Looks like the bear grip will remain strong for a while.

Bottomline? The stock chart pattern of Bilcare Ltd is not inspiring confidence. A fall to the 300-350 zone may be a better entry point for bravehearts - but only after thorough homework.

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