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Wednesday, January 13, 2010

Stock Chart Pattern - Bharti Airtel (An Update)

My previous look at the stock chart pattern of Bharti Airtel was back in Apr 29, '09 when the 2:1 stock split was announced. The stock had bounced off from an intra-day low of 272 (split-adjusted) on Mar 12 '09 and had sailed above the 200 day EMA.

The rise seemed too steep, and was devoid of volume support - which is essential for a bull rally to sustain. The post-election result euphoria took the Bharti Airtel stock to a high of 495 (split-adjusted) on May 19, '09 - but well short of its Oct '07 high of 575.

Let us take a look at the 1 year closing chart pattern of Bharti Airtel and see what transpired since then:-


The bears attacked almost immediately as the stock dropped on much higher volumes. A sideways consolidation followed for the next 4 months. After making an intra-day low of 360 on Aug 11 '09 that took it below the 200 day EMA, the stock rose steadily to make a high of 467 on Oct 1 '09. The consolidation was marked by low volumes, which isn't unexpected. But the higher volumes on down days was a big negative.

Then the bottom fell out as the stock tanked on very high volumes. It finally dawned on investors that the heady growth of yesteryears had come to an end. Severe price competition from newer and bigger players had started to take a toll on the company's profit margins.

After making an intra-day low of 230 on Nov 27, '09 the stock made a valiant effort to move above the 200 day EMA. It managed to cross above the 50 day EMA and made an intra-day high of 349 on Dec 11 '09 - hitting exactly the 50% Fibonacci retracement level of the fall from 467 to 230.

Another period of sideways consolidation followed, that brought the 20 day EMA close to making a bullish cross above the 50 day EMA. Today's close of 319 has dropped the stock below the 50 day and 20 day EMAs. Technical indicators like the slow stochastic, RSI and MFI are showing negative divergences as they moved lower while the stock moved sideways.

What next? The impending 3G spectrum auction is going to cause a huge outflow of cash, at a time when continued price competition is clouding the future. The Bharti management, which has shown its mettle through thick and thin, may not be relishing the idea.

Which telecom service provider is going to make it through the next two years with its reputation and financial situation reasonably in tact? My guess will be Bharti. But that doesn't mean I'll bet my money on them. Fundamentally and technically, the stock is looking bearish.

Bottomline? The stock chart pattern of Bharti Airtel is showing an interesting double bottom on a closing basis (279 on May 13 '09 and 281 on Nov 25 '09). A drop below 280 can take the stock to 220. Bulls have nothing to celebrate till the recent high of 349 is taken out. New entrants should avoid the stock. This is not the time to play contrarian.

Related Post

Should Indian investors switch out of Telecom Sector stocks?


Mitran said...

if i do SIP on Bharti airtel for next two years(4 stocks every month), i can earn decent gain than FD.
am i right?

Maxware Technologies said...

so we expect more correction on bharti and we have to wait and buy..thanks

Subhankar said...

@Mitran: I'm not sure how long the price wars will continue and how much Bharti will be able to shield itself from a drop in profits.

@MT: I wouldn't rule out more correction in Bharti. Whether it will be worth a buy or not is debatable.

The telecom services sector has seen its best days, and profits are unlikely to see much growth. I prefer the telecom VAS space.