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Thursday, September 20, 2012

Stock Chart Pattern - Bilcare Ltd (An Update)

The previous technical update to the stock chart pattern of Bilcare Ltd was posted back in May 2011. Small investors were again advised to avoid the stock. But there seems to be a fatal attraction for stocks with which the RARE bull’s name has been linked. Readers keep visiting the Bilcare posts on the blog.

That can mean one of two things. Those who had read the earlier posts may have hung on to their holdings – most likely purchased at higher levels – in the hope of recovering their ‘buy’ price. New readers may have been attracted by the recent high volume spurt in the stock’s price.

If you fall in either of those two categories, use the current rally to bail out. The company has recently sold its US and UK clinical businesses for Rs 300 Crores in an effort to clean up its balance sheet, as its financial expenses exceeded net profit in year-ending Mar ‘12. Q1 results showed a sharp drop in net profit. Much better stocks are available in the pharmaceutical sector.

A look at the one year daily bar chart pattern of Bilcare Ltd shows that bears are yet to release their strong grip on the stock:


There are a few important technical points to note on the above chart:-

  • Back on Nov 14 ‘11, the Mar ‘09 bear market bottom of 279 was breached on a volume surge. A high volume penetration of a support level usually turns it into a strong resistance level during subsequent up moves.
  • A high volume ‘panic bottom’ was formed at 190 on the next day. A high volume bounce was followed by a few days of sideways consolidation before the stock price dropped like a stone to a new low of 157 on Dec 22 ‘11 – proving the old saying: “A panic bottom seldom holds.”
  • The stock price rallied along with the broader market to touch an intra-day high of 255 on Feb 21 ‘12 – gaining a substantial 62% from its Dec ‘11 low and providing a decent trading opportunity – but failed to test its Mar ‘09 level of 279.
  • The down trend resumed and the stock dropped to a lower intra-day low of 132 on May 31 ‘12 – maintaining a bearish pattern of lower tops and lower bottoms and under-performing the Nifty which touched a higher bottom in Jun ‘12.
  • The rally from the low of 132 touched a lower top of 194 on Sep 14 ‘12 – despite a surge in trading volumes. The stock price has started correcting after facing resistance from the falling 200 day EMA.

Technical indicators are bullish, but correcting overbought conditions. MACD is positive and above its signal line, but sliding down. ROC is also positive, but has dropped to touch its 10 day MA. RSI briefly entered its overbought zone, but looks ready to come down. Slow stochastic has moved down from its overbought zone.

The stock price may find support from its rising 20 day or 50 day EMAs and make another attempt to cross its 200 day EMA. Even if it is able to do so, it is unlikely to move above the 279 level in a hurry.

Bottomline? The stock chart pattern of Bilcare Ltd is still in a long-term bear market. After touching a high of 1830 in Jan ‘08, the stock lost a massive 93% to touch a low of 132 in May ‘12. Small-cap stocks rarely (no pun intended) recover from such huge falls. Those with a penchant for risk can play for a possible 100 point gain from current levels. But smart investors should stay far away from all RARE stocks.

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