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Wednesday, January 20, 2010

Stock Chart Pattern - Balrampur Chini (An Update)

During my previous look at the stock chart pattern of Balrampur Chini, the stock had jumped up from the Mar '09 low of 42 and had nearly doubled in value by early May '09. I had expected the stock to face some profit booking after the rapid rise.

The stock consolidated in a triangle pattern instead of correcting, and after the election results embarked on a steady northward journey with occasional dips. The bull rally finally terminated with a key reversal day on Oct 30 '09, as the stock hit a higher high of 167 and a lower close of 149.

The spectacular 450% rise from the low of 30 made in Dec '08 still fell short of the high of 205 made on Apr '06. Let us take a look at the 9 months bar chart pattern of Balrampur Chini to see what transpired next:-

Balrampur_Jan2010 

The reversal day pattern stopped the bull rally on its tracks and the stock has been drifting sideways with a downward bias since then. The 20 day EMA is resting on the 50 day EMA and the stock has moved below both the short and medium term moving averages.

The stock had recovered well in Dec '09 when the 20 day EMA had moved down to touch the 50 day EMA, but made a lower top. If it moves below 120, a bearish pattern of lower tops and lower bottoms will get formed.

There is a possibility that the 200 day EMA will provide support to the stock. Even if it does, and the stock manages to move up again, a bearish descending triangle pattern will start forming.

The OBV seems to be tracking the stock's movements, as it is supposed to do. But the MACD has moved into the negative zone and has gone below the signal line. The RSI is below the 50% level and rapidly moving towards the oversold zone. Looks like the wind has gone out of the stock's sails.

What has caused the bearishness? Technical analysis alone can't explain it. This is another instance of why both technical and fundamental analysis need to be considered for buy-sell decisions.

The Saraogi family of Calcutta that owns 36.5% of the equity and runs the show at Balrampur Chini seem to have had enough and have been trying to sell the company. In Nov '09, Bajaj Hindustan balked at the Rs 180 per share (of face value Re 1) price. In Dec '09, an attempt by Shree Renuka Sugar to take over the company came to nought.

The other reason for lack of investor interest could be the likely bulk import of sugar by the Government to ease the shortage situation. That would help curtail the runaway sugar prices and dent the profits of sugar manufacturers.

Bottomline? The stock chart pattern of Balrampur Chini shows a distinct dampening of bullish fervour. Existing holders may stay invested with a strict stop-loss at 115, with the hope that a white knight will appear on the scene soon. The risk-averse can book profits. Fresh entry is not recommended.

2 comments:

kaku said...

this stock had a 78cr loss and dropped in price at 80. are the fundamentals weak for fresh entry?

Subhankar said...

The sugar sector has too much government interference in its operations - one reason I have avoided investing in the sector. The management of Balarampur Chini wants to get rid of the company.

Shri Renuka may be a better bet - if you want to invest in the sector.