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Thursday, August 2, 2012

Stock Chart Pattern - Bharti Airtel (An Update)

In the previous update of the stock chart pattern of Bharti Airtel posted on May 25 ‘11 (marked by grey vertical line on the chart below), negative divergences in the technical indicators – which failed to touch new highs with the stock’s price (marked by blue arrows) – led to the following concluding comments:

“The stock chart pattern of Bharti Airtel is back in bull territory, but not yet out of the woods. Without a doubt, this is the best stock among the telecom service providers. But its glory days are behind it. As an investor, you always have choices. If you are going to invest in a slow growth, stalwart stock – would ITC or Dabur be better bets?”

If you are a die-hard fan of Bharti Airtel’s stock, you probably ignored my suggestion of a switch to ITC or Dabur. You may be suffering the consequences if you failed to sell when the stock hit its peak exactly a year ago. Incidentally, both ITC and Dabur would have been good candidates for a switch. While Bharti has lost 19% till date from its closing price of 369 on May 25 ‘11, ITC’s stock has gained 38% and Dabur’s stock gained a more modest 12%.

To grow one’s wealth, some times tough choices need to be made – specially when it involves getting rid of a hitherto outstanding performer in your portfolio. Many small investors must have faced a similar choice with the Infosys stock.

Bharti_Aug0212 

Despite the negative divergences marked in the daily bar chart pattern of Bharti Airtel, the stock kept rising for the next two months after my previous post and touched a two year high of 444.70 on Aug 1 ‘11. But it turned out to be a high volume ‘distribution day’ (open near day’s high and close near day’s low) that marked the end of a 14 months long bull rally. A small ‘rising wedge’ bearish pattern was formed as the stock touched its peak.

The subsequent bear phase in the stock’s price has completed a year. By touching an intra-day low of 280.10 on May 23 ‘12, the stock retraced 86% of its previous rally from the low of 254 (touched on Jun 2 ‘10). The ‘death cross’ of the 50 day EMA below the 200 day EMA in Dec ‘11 (marked by light blue oval) technically confirmed a bear market. The stock is trading below its falling 200 day EMA and the blue down trend line.

Technical indicators are bearish. MACD is falling below its signal line in negative territory. ROC is negative and below its 10 day MA, but trying to rise. RSI is moving sideways below its 50% level. Slow stochastic has entered its oversold zone.

Bottomline? The stock chart pattern of Bharti Airtel is falling deep into a bear market – touching lower tops and lower bottoms. The stock hasn’t found a bottom yet. There is no point in trying to catch a falling knife. If it falls below 280, it can test its Jun ‘10 low of 254. Avoid, till the stock price makes a reversal pattern. The company is under scrutiny by regulatory authorities for huge tax evasion.

6 comments:

Jasi said...

Sir,
Its all thanks to you that I'm no longer holding on to this loser.

Appreciate all coverage you do for individual stocks!

Subhankar said...

The comments below are from KKP_Investor:

Just spent a few minutes studying the long term chart......Here are some comments:

Again, this is hindsight 20-20, but that is how traders learn, and so without introducing anything new in the chart, here are some ideas:

1. Divergences with a normal settings on a long term chart will get you some early signals, but as you noticed, the stock went up quite a bit after the divergence. The divergence was meant for a 14 to 22 day timeframe typically played by Swing Traders.

2. Hence, if someone did want to use the Divergences, then it has to be mixed with what the Moving Averages are saying on your chart. The 20/50 MA Crossover is a phenomenal signalling mechanism, and almost better than MACD (even though it is the same, although it is much shorter term with standard settings). This signal would have allowed you to honour Divergences (as you wished), and mix it with the correct timing aspect that would have gotten you out AFTER the full topping formation.

3. So, following the Crossover, the sell signal would have been around 410 or even higher if you were deploying one more mechanism. An 8% Trailing stop loss as a GTC order would have gotten you a huge profit potential bringing the stop to the New High minus 10% (approx. for slippage).

So, adding #2 and #3 to the current set of indicators gives the medium term swing trader a HUGE BENEFIT.

All of the above might be commonly known facts, but it is the really the 'combination lock sequence' that makes BIGGER PROFIT AND SMALLER LOSS than the individual indicator, and then the COMBO has so many permutations, that it is hard to decipher what is good and bad, and which ones to listen to, and react.

Subhankar said...

@Jasi: Pat yourself on the back, Jasi. Recommending is easy. Acting on a recommendation is much tougher.

@KKP: Those are great pointers, KKP. Medium-term swing traders can make a note of these tips from a market veteran.

Ajay said...

Dear Sir,

You are again spot on to warn the fall of Bharti Airtel.

But Bharti is not like any other penny stock to ignore for long. What is safe level to enter in to this stock with a very long term view.

Subhankar said...

Thanks for your comments, Ajay.

Please read the concluding paragraph of the post for my recommendation.

I agree that Bharti is not a Suzlon or a Kingfisher Airlines. That doesn't mean it is the best stock to own for the long-term. You may be better off looking at Dabur or Pidilite.

Subhankar said...

The stock is struggling to cross the resistance from the 280 level - another example of a support turning into a resistance.

If you are still holding on or planning to enter, the following article should help to make up your mind:

http://www.valueresearchonline.com/story/h2_storyview.asp?str=21352