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Thursday, June 2, 2011

Stock Chart Pattern - Colgate Palmolive India (an update)

I had written an analysis of the stock chart pattern of Colgate Palmolive almost two years back. It was interesting to go through some of the comments on that post – including one where I had mentioned that the stock could be bought at any price.

In a post on FMCG sector stocks in Jan ‘11, a brief update was provided. The stock was consolidating within a symmetrical triangle after touching an intra-day high of 996 in Nov ‘10. Partial profit booking was suggested as the stock had entered the triangle from above, which indicated a possible break below the triangle.

The one year bar chart pattern of Colgate Palmolive shows some interesting technical developments that exemplify how strong the stock is technically:

Colgate_Jun0211

Shortly after I wrote the brief update in Jan ‘11, the stock dropped below the triangle, took support from the 200 day EMA as expected, and jumped back inside the triangle. That was a warning of what was to follow.

By the end of Jan ‘11, a high volume break down breached the 200 day EMA and reached an intra-day low of 783 on Feb 2 ‘11 – correcting 21% from the Nov ‘10 peak of 996, slightly underperforming the Sensex (which lost 18%).

Despite spending several trading sessions below the 200 day EMA in Feb ‘11, the stock started to recover and by Apr ‘11 had moved up to the resistance level of 918 – its closing high in Sep ‘10. A sideways consolidation till May 10 ‘11 culminated in several unsuccessful attempts to break out above 918. The negative divergences in all the technical indicators ‘resisted’ the break out attempts.

A correction in a narrow downward channel breached the 20 day EMA but found support from the 50 day EMA. Today’s spurt on good volumes pushed the stock above the 918 level once more – but not convincingly as yet.

Note that the entire corrective move after touching the Nov ‘10 peak, including the consolidation within the symmetrical triangle, has formed a bullish cup-and-handle continuation pattern. A test and likely breach of the previous top is on the cards.

The technical indicators are turning bullish. The MACD has changed directions in the positive zone, though it is still below the signal line. The ROC has climbed above its falling 10 day MA into positive territory. The RSI bounced up from the edge of its oversold zone and is touching the 50% mark. The slow stochastic has moved up from its oversold zone towards the 50% level.

Fundamentally, the stock remains as solid as ever – growing its top and bottom lines, generating a ton of cash from its operations, with negligible debt in its books. The reserves have been built up considerably. A bonus issue won’t be a surprise. Like most FMCG companies, margins are under a bit of pressure.

Bottomline? The stock chart pattern of Colgate Palmolive is poised to test, and possibly breach, its all-time high of 996. The stock has been in a bull market since touching its 2007 low of 300 – tripling in four years. This is the kind of stock that small investors should buy whenever they have some spare cash, with the object of leaving it as a family treasure for future generations to enjoy.

4 comments:

Din said...

reading it was like SIPing ur Darjeeling Tea on dat cup...

Thank you sir.

Subhankar said...

Thanks for your comment, Din.

As the French would say: 'touche'!

rk77 said...

I remember your remarks that Colgate is like family Jewels that one buys not to sell but to pass on to the next generation. Expensive but worth accumulating over a time. I started with 10 in 2009 and now have 100. Looking forward to the bonus that is overdue considering its past track record. 10000 grew to 40 Lacs in 30 years as the records show and some lucky ones have benefited.

Subhankar said...

There are other 'jewels' - like Nestle, HUL, Castrol - that continue to add to investor wealth.

Unfortunately, small investors get attracted to shinier but fake 'jewels' - like Delta Corp and Bilcare - which are pumped and dumped on them.