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Thursday, September 27, 2012

Stock Chart Pattern - Colgate Palmolive India (an update)

The previous update to the technical analysis of Colgate’s daily bar chart pattern – posted on Jun 2, 2011 (marked by grey vertical line on chart below) - had the following concluding comments:

“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.”

On Jun 29 ‘11, within a month of writing the previous post, a high volume spurt took the stock to a new intra-day high of 1002. It rose further to touch another new high of 1022 on Jul 4 ‘11, but formed a small double top and fell into a down trend. A triple-bottom at 896 in Aug ‘11 ended the correction. A sharp up move touched a new high of 1047 on Sep 7 ‘11.

Colgate_Sep2712

A pullback found support from the down trend line. A sideways consolidation with an upward bias followed till the end of Oct ‘11. On Nov 1 ‘11, another high volume spurt took the stock to another new high of 1060, and then to 1075 three days later.

A 3 months long consolidation within a ‘falling wedge’ pattern took the stock price down below its rising 200 day EMA, where it formed a higher bottom at 932. The up move resumed and broke out of the ‘falling wedge’ on Jan 31 ‘12. The break out was not accompanied by an increase in volume.

The stock consolidated sideways till a volume spurt pushed the stock out of its consolidation zone to another new high of 1081 on Feb 27 ‘12. Thereafter, the stock price kept rising and touching new highs on almost a fortnightly basis till it touched 1250 on May 28 ‘12.

A 2 months long consolidation within a ‘symmetrical triangle’ pattern ended with another low volume break out, followed by a pullback to the top of the triangle and then a sideways consolidation. The stock price rose again to touch 1264 on Sep 13 and 14 ‘12 – giving 4-bagger returns in 5 years from its 2007 low of 300.

Note that all four technical indicators touched lower tops than their May ‘12 tops while the stock price rose higher. The combined negative divergences caused a sharp correction that may not be quite over yet. A drop to the rising 200 day EMA (at about 1125) is a possibility.

Over the past 12 months, the company’s stock provided a capital appreciation of 25% plus a total dividend of Rs 25 per share. The record date for the first interim dividend of Rs 13 per share for the current year is Oct 3 ‘12. The company continues to generate a ton of cash, has huge reserves and is debt-free. Top line has grown by 80% and bottom line by more than 100% during the past 5 years.

Bottomline? The stock chart pattern of Colgate Palmolive is undergoing one of its periodic corrections that provide adding opportunities. For small investors – specially those who are not adept at stock picking - Colgate is an ideal ‘SIP’ping candidate. If you think the price is too high, so is dinner at a good restaurant! Buy just 5 shares every month.

4 comments:

rk77 said...

Colgate has formed a Head and Shoulder pattern. Is it a buy at this level or one should wait till it goes below 1125 ?
The volume increase is not seen on the right shoulder so it may not drop much below this level - is that right interpretation?

Subhankar said...

As I mentioned before, Colgate stock can be bought at any price. Looks like it may have found support at 1230. Confirmation will come once it crosses 1380.

rk77 said...

Colgate made triple top which is bearish and has dropped below 1230 on high volumes. This suggests further fall is likely. Lower profit margin due to increased ad spending and competition from Pepsodent, no bonus issue since long have disappointed some investors. What is the next lower support level likely?

Subhankar said...

Good observations, Dr K. The stock seems to be correcting the entire up move from Feb '11, and has slipped into bear territory.

Next support is at 1080. Below that at 900.