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Thursday, August 18, 2011

Stock Chart Pattern - 3i Infotech Ltd (An Update)

The previous technical update of the stock chart pattern of 3i Infotech was posted exactly one year back. The stock had dropped from an intra-day peak of 103 in Oct ‘09 to close at 63 on Aug 17 ‘10, and was in a bear market. My concluding comments were:

‘If you are still holding the stock, get out at the earliest opportunity. The stock can fall much lower.’ 

And so it has – as a look at the one year closing chart pattern of 3i Infotech will confirm:

3i Infotech_Aug1811

Shortly after I wrote the previous update, the stock price slid to a low of 58 on Aug 31 ‘10. Note the oversold conditions in the RSI and slow stochastic. A rally ensued, which found initial resistance from the 20 day and 50 day EMAs. Strong volumes enabled the stock price to reach the falling 200 day EMA, with a few isolated closes above the long-term moving average.

On Nov 11 ‘10, the stock touched an intra-day peak of 72 but it turned out to be a high volume ‘reversal day’ that extinguished the last flickering bullish hope. The stock dropped to an intra-day low of 38 on Feb 10 ‘11, and then started a ponderous rally that touched an intra-day high of 54 on Jun 6 ‘11 – just above the falling 200 day EMA, only to close much lower at 48.

It has been all downhill ever since. All four technical indicators are looking extremely bearish and oversold. But a stock can remain oversold for long periods. At today’s closing level of 28, it is just 10% above its bear market low of 25 – touched on Mar 12 ‘09. There is every possibility of the stock price falling below 25 and turning into a penny stock.

The company is still grappling with a huge debt burden, and had to sell off one of its US acquisitions to help clean up its balance sheet. But there is a long way to go. The slow growth of the US and Eurozone economies will continue to hamper its export business.

Bottomline? The stock chart pattern of 3i Infotech is an example of how a company with good pedigree and business model can come unstuck because of over-leveraging in an effort to become too big too fast. This is not a contrarian pick. Stay away.

2 comments:

Ajay said...

Hi,

It was such an exact prediction, the stock is down 50%, is there any bottomming out at this level!! or is it going to become a penny stock

Subhankar said...

@Ajay: Sorry, no signs of a bottom in 3i Info. Heading for penny-land.