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Wednesday, December 22, 2010

Stock Chart Pattern - Bartronics India (An Update)

The previous analysis of the stock chart pattern of Bartronics India was mainly to warn my readers about the deteriorating fundamentals of the company, so that those still invested in the stock could get out before it became too late.

Every bull run in the stock market throws up a few ‘favourites’ which are strongly backed by broker and analyst recommendations. These tend to attract small investors with little or no prior experience of stock selection. They get enamoured by the ‘theme’ and invest in droves without doing due diligence about the company, its promoter’s track record, and the business fundamentals.

The more esoteric and ‘high tech’ sounding the theme, the more attractive the stock appears. Some of these ‘theme’ stocks of the previous bull run have taken many small investors to the cleaners. Cranes Software (engineering software), Suzlon Energy (wind power), Praj Industries (alternative fuel), and Bartronics (bar code readers and smart cards) are a few examples.

The Bartronics stock was hovering near its 200 day EMA around the 150 mark when I wrote the previous post back in Mar ‘10. Those who heeded my advice and sold out have saved themselves a lot of money. The one year bar chart pattern of Bartronics shows that the stock has lost 50% of its value:

Bartronics_Dec2110

The stock desperately tried to cling on to its long-term moving average – some times dropping below, then recovering above – till it convincingly broke down in Aug ‘10 and quickly dropped to 100, which happened to be a long-term support level.

A high-volume bounce in Sep ‘10 raised bullish hopes, and took the stock above its falling 20 day EMA. The respite was brief. The stock started sliding down towards the 100 level with the 20 day EMA acting as a strong resistance.

Another bounce from the 100 level on decent volumes in Nov ‘10 saw the stock briefly clear both the 20 day and 50 day EMAs. With all four EMAs falling in unison, bears used the upward bounces as opportunities to sell.

Once the stock fell convincingly below 100, bears took control and the stock slid sharply down to a low of 72 on Dec 20 ‘10, losing more than 50% in 9 months. The technical indicators are all bearish. The MACD and ROC are negative. The RSI and slow stochastic are in their oversold zones.

If you are one of the unfortunate few who are still holding on with hope and a prayer, I’m afraid I can’t provide any solace. There is not much hope of any improvement, and prayers don’t work too well when a stock is fundamentally and technically weak.

Bottomline? The stock chart pattern of Bartronics – as well as the other stocks mentioned – are in strong bear markets. Just goes to show that a bull market does not necessarily drive up prices of all stocks. Small investors should do their homework before investing in popular ‘themes’. Better still, avoid well-publicised ‘theme’ stocks completely.

7 comments:

Niteen S Dharmawat said...

Hi,

Just to highlight one more weakness which common investors tend to conveniently ignore. It's from the shareholding pattern. The promoters have Pledged/Encumbered 68.49% of their holding (anyway their holding is not significant compared to public holding which is 70.38%). It's not that they have Pledged/ Encumbered in this quarter but they have consistently increased the % of shares pledged from 46.88 to 65.32 to now 68.49% during last three quarters. This 68.49% is 20.29% of total equity, in other words they are now holding only 8.5% (unpledged shares) of total equity base. Very sorry affairs. I am not concluding that there is any scandal in making but this is the one thing found common in the companies which are tainted.

Cheers,
Niteen S Dharmawat
http://dharmawat.blogspot.com/

Subhankar said...

Thanks for pointing out an important criteria for evaluating management quality.

In the previous post, I had mentioned that the promoter holding was going down and was far less than the public holding - which is a red flag, particularly for small-cap companies.

It all boils down to a simple fact - if the core business doesn't/can't generate adequate cash, all sorts of leverage and financial shenanigans are resorted to, eventually leading to a collapse of the business.

jawaharlal bansal said...

Kindly update Bartonics chart one year forward.

Subhankar said...

Not much to update, Dr B.

Just a steady descent into the depths of a bear market.

rk77 said...

This was prophetic. I was one of those who believed in their story and got out at 105 - late enough to lose something but wise enough to listen to Subhankar. Bartronics was recommended for purchase by most of the famous analysts that sell paid Newsletters, come on TV to fool gullible investors. Some even right for Stock magazines and Financial newspapers!

Subhankar said...

Appreciate your comments, Dr K.

Geodesic is another stock which was touted as the next great software story. I never could figure out how they make money - so stayed away.

It is important for small investors to understand a business before investing in it.

Subhankar said...

Things are getting from bad to worse:

http://smartinvestor.business-standard.com/market/CResults-144872-CResultsdet-Bartronics_India_Q2_net_loss_at_Rs_159_cr.htm