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Wednesday, October 3, 2012

Stock Chart Pattern - Balrampur Chini (An Update)

The previous technical update of the stock chart pattern of Balrampur Chini was posted back in Jan 2010, with the following concluding remarks: “Existing holders may stay invested with a strict stop-loss at 115, with the hope that a white knight will appear on the scene soon. The risk-averse can book profits. Fresh entry is not recommended.”

The owners had been trying to sell the company, but the high asking price had deterred potential buyers like Bajaj Hindustan and Shree Renuka Sugar. No white knight appeared. After touching a high of 167 in Oct ‘09, the stock dropped into a prolonged bear phase. It received brief support at 115, but soon dropped to 70, where it received stronger support – in May ‘10 and then again in Dec ‘10 (marked by blue up arrows on left of chart below).

Once the support at 70 got breached in Feb ‘11, the stock made a couple of valiant efforts to climb back and stay above 70 but failed and dropped all the way down to a low of 33 in Dec ‘11 – just above its Oct ‘08 low of 30. The bear phase appears to have ended finally.

Balrampur_Oct2012

The daily bar chart pattern of Balrampur Chini shows an uptrend from the Dec ‘11 low of 33 (marked by blue uptrend line) that has already provided more than 100% gains in 8 months, but is facing strong resistance from the support/resistance level of 70 (marked by blue down arrow on right of chart above). This is another example of how an earlier support level can turn into a future resistance level.

Will the stock price be able to break out above the 70 level soon? Technical indicators seem to indicate otherwise. MACD is barely positive, and is below its signal line. ROC is above its 10 day MA but has slipped back into negative territory. RSI faced resistance from its 50% level, and is moving down. Slow stochastic has moved above its 50% level. Bulls have some more work to do before the stock price can move higher.

The company hasn’t been doing well. Top line shrank by 22% in FY ‘12 while bottom line shrank by 96% and was barely positive. Debt/Equity ratio is 1.42. Interest expenses continue to affect the bottom line. Q1 results showed top line growth of 21%, but hardly any improvement in the bottom line, which remained negative.

What should small investors do? If you are holding on from higher levels in the hope of getting back your ‘buy’ price, it may be a good idea to get out now. If you are one of those lucky few who managed to get in at lower levels, book part profits and hold the balance with a trailing stop-loss at the level of the uptrend line (now at about 60). If you are thinking of making a fresh entry, don’t. Much better stocks are available in the market.

Bottomline? The stock chart pattern of Balrampur Chini seems to have shrugged off the bears and is trying to enter a new bull market. That doesn’t make it a good investment candidate. There is too much political interference in the sugar sector as a whole. Stocks from the sector are best avoided.

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