Wednesday, May 19, 2010

Stock Chart Pattern - Bharat Bijlee (An Update)

My previous look at the stock chart pattern of Bharat Bijlee was an example of what can happen to fundamentally strong small-cap stocks during a bear market.

The stock got hammered down from a high of 3950 (Jan '08) to a low of 301 (Mar '09) - a huge fall of 92%. Small or mid-cap stocks have a tough time recovering from such massive falls. The stock rose sharply by almost 240% to 1015 in Jun '09, but managed to retrace less than 20% of its fall.

Thereafter, the stock went into a correction mode and had reached 785 after dropping to a low of 680 (a 47% retracement of the rise from the bottom of 301 - close to the 50% Fibonacci retracement level).

I had expected the correction to last a while longer based on the technical indicators and had suggested an entry for patient investors with a possible upward target of 1500 in one year. (The reason for that target? It is a 33% retracement of the bear market fall. Goes to show that arithmetic alone does not ensure stock market success!)

The stock moved down to 733 in Aug '09, forming a bullish ascending triangle pattern. An upward break out on decent volumes seemed to get the up move back on track.

Let us take a look at the 1 year bar chart pattern of Bharat Bijlee to check how the stock has fared in the past 10 months and what is the likelihood of its hitting the price target any time soon:

Bharat Bijlee_May1910

After reaching 1090 in Oct '09, the stock fell back to the support level at 880 and moved sideways for 2 months. A huge volume spurt (a block deal?) in early Jan '10 pushed the stock up to its high of 1170 - which retraced about 24% of its entire bear market fall.

Looks like end-of-story for the bull rally in the stock, as it has started to make lower tops with a flat bottom at 880. That has formed a bearish descending triangle pattern, from which the stock is expected to break downward to at least the 700 level, if not more.

The technical indicators are not holding out much hope for the bulls. The MACD is below the signal line and about to enter negative territory. The RSI is hesitating at the edge of the oversold zone, waiting for a push to go in. The slow stochastic is already inside the oversold zone.

Bottomline? The stock chart pattern of Bharat Bijlee shows that the bulls are on the mat and about to be counted out. Existing holders should get out now, or at best, hold with a strict stop-loss at 880. New entrants should avoid the stock.


scorpio said...

Sweet - your posts are always good place to learn. Though fundamentals are good, stock is not moving well. Nice you always mix fundamentals and technicals.

Subhankar said...

Thanks for your comments, Ashish.