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Wednesday, May 26, 2010

Stock Chart Pattern - Marico Ltd (An Update)

When I analysed the stock chart pattern of Marico Ltd in end-July '09, it had risen from a low of 47 to a high of 92 and was showing signs of being overbought. Brokerages were giving 'buy' calls but I expected a correction.

A growing, fundamentally strong FMCG company like Marico Ltd is just the kind of company that small investors should consider investing in - particularly during uncertain times. But one should always exercise caution near a chart top.

It is time to have a re-look at the one year bar chart pattern of Marico Ltd:

Marico_May2610 

The stock corrected from 92 down to 78, where it received support from the rising 50 day MA. Now 14 points don't seem like much of a correction, does it? But for a Re 1/- face value stock that isn't a measly amount. In fact, it was a 31% retracement of the rise from the bear market low of 47 to 92, and a 15% correction from the high of 92.

The technical health of the stock got restored, and it rose steadily for the next 3 months to hit a new high of 113 in Nov '09. Thereafter, the stock got into a sideways consolidation phase that lasted almost 5 months.

A second bottom at 96 in late Feb '10 saw the stock moving up smartly, ending with a sharp upward breakout from the consolidation zone. The stock touched a high of 122 on Apr 5 '10 - but on low volumes. All three technical indicators made lower tops - indicating negative divergences.

The bears took the opportunity to go on the offensive. The stock hit a low of 105 earlier this month, then rallied to 118 before dropping to 100 in quick time. A bearish 'lower top - lower bottom' pattern has formed.

The stock is trading at an EPS of 28, which is higher than ITC's EPS of 25. Support levels at 96, 92, 87 and 78 have been marked on the chart. The 92-96 zone should provide strong support. The band between 78 and 87 could be a better entry opportunity.

The MACD is getting deeper into negative territory. The slow stochastic has entered the oversold zone. The RSI is showing positive divergence, by making a higher bottom as the stock made a lower one.

Bottomline? The stock chart pattern of Marico Ltd is hinting at more weakness. Prices neither rise nor fall in one go. So a bit of up move and consolidation can be expected. Further down side is indicated by the down day volume spikes, which are a sign of distribution.

4 comments:

Sam said...

Hello Sir,

Just a minor correction.. u mentioned EPS of 28 for marico.. i guess u mean to saay it is trading at PE of 28 instead of EPS..

Correct me if i'm wrong..


Thanks & Regards,
Mansoor

Subhankar said...

Thanks for the correction, Mansoor.

I did mean P/E of 28 for Marico and P/E of 25 for ITC. Getting sloppy with age!

SV said...

Just bumped into this post today,Back in your July'09 post I had commented that stock is a breakout and can touch 160 in two years and wont see 5o in next couple of years again .I wish it can achieve that.Sir, One thing I have learned hard way is that its not good to fear from heights in stock market. Prices might seem overstretched at times but they can remain so for long time.its always good to be comfortable with rise and fall.Not trying to be rude here just sharing what i have experienced.

Subhankar said...

Thanks for your comments, Sumit.

Good call on Marico. The chart is looking very bullish and may touch your target price of 160 sooner than you expected.

However, it is looking stretched valuation wise and continues to trade at a higher P/E than ITC.