Technical updates – Bartronics and Bilcare

There are two kinds of stocks that never fail to attract small investors – ‘theme’ stocks and RJ stocks. Just like a flame never fails to attract moths. The end results of such attractions are almost equally disastrous.

There are no better examples of these two kinds of stocks than Bartronics and Bilcare. The former is a ‘theme’ stock with a story (high-tech electronics, bar code readers - the next great invention since sliced bread, etc.) that was successfully promoted by brokers and analysts.

The latter is a typical RJ entrapment. Supposedly bought at much lower prices and well publicised as being in RJ’s portfolio, small investors piled into it to push the stock price sky high (to 1830 in Jan ‘08) before the bottom fell out.

With the stock market touching a lifetime high, several ‘theme’s are playing out on message boards (water treatment, agri-related, defence-related etc.), not to mention current RJ favourites. Do yourself a favour. When you hear ‘theme’ or ‘RJ’ in a conversation at a get-together, excuse yourself and leave. 

Bartronics

The stocks price of Bartronics had touched a high of 294 in Jan ‘08. It then dropped to a low of 55 in Nov ‘08, recovered to a high of 194 in Jul ‘09 and then had a one-way fall that seems to have finally bottomed out at a low of 5 touched in Aug ‘13.

The stock has since tripled by closing at 15 on Jun 6 ‘14, but is consolidating sideways within a symmetrical triangle pattern. The stock has returned to a bull market. The ‘golden cross’ of the 50 day EMA above the 200 day EMA has technically confirmed that.

But triangles are unreliable. The break out can be upwards or downwards. Daily technical indicators are looking bearish. If you are thinking about buying because the stock is cheap, forget it. Fundamentals are awful.

Bilcare

The stock price of Bilcare dropped from 1830 in Jan ‘08 to a low of 36 in Dec ‘13 – losing 98% from its peak (like Bartronics). The stock closed at 106 on Jul 7 ‘14, almost tripling from its Dec ‘13 low and returning to a bull market.

The stock price has formed a ‘rounding bottom’ bullish pattern, suggesting more upside. There is resistance at the 138 level, but it may take a while to get there. Daily technical indicators are looking bearish. Some more correction is likely.

Fundamentals are almost as bad as those of Bartronics. Loss-making with a huge debt that is like a millstone round its neck. Best to avoid.

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.

Should small investors follow in the steps of well-known market players?

Many small investors believe that stock market investing is a zero-sum game. Some one buys and some one else sells. If a stock or index goes up after the transaction, the buyer wins and the seller loses. If the stock or index goes down, the buyer loses and the seller wins. Pretty simple, right?

Not quite. The commonly-held belief that ‘for every buyer there is a seller’ may be grammatically correct, but reality is entirely different. Here is an example: Today, the market was agog with the news that HSBC had sold major chunks of its holdings in Axis Bank and Yes Bank. Several hundred thousand shares changed hands.

Was there a single buyer who came forth to buy all the shares of Axis Bank and Yes Bank? No. How do I know that? From the price action. Axis Bank dropped 2.75% and Yes Bank dropped 2.25% after the news hit the market. There were several buyers for the Yes Bank offering. Fewer buyers for the Axis Bank offering.

Against one seller in both bank stocks, there were several buyers. If both stocks continue to fall in tomorrow’s trade, there will be one winner and several losers. A negative-sum game. If both stocks rise tomorrow, there will be one loser and several winners. A positive sum game. It is important to understand this – because it leads to the answer of the question.

Axis Bank and Yes Bank are well regarded and managed private sector banks. Buying their stocks and facing a temporary loss at current market price may not be a big deal because both companies are likely to perform well in future. Chances of making up the loss and moving into profit are high.

Now, replace HSBC in the above example by your favourite market player – RJ, RD, NK, etc. Imagine one of them is holding a large chunk of shares in companies like Bilcare, Delta Magnets, Bartronics. He first lets it be known that he has entered these companies. That attracts the attention of small investors. Then he keeps the market primed with all kinds of positive news – great acquisitions, fantastic prospects, brilliant technology tie-ups.

Small investors get sucked in, because every one loves to ride the gravy train. When the market price of the stock gets pumped up to a sufficiently high level, the selling begins. It’s a hugely negative-sum game. Only one winner, and thousands of losers.

If you want to be on the winning side in the stock market game, you have to work hard. Analyse companies fundamentally and technically, read newspapers and business magazines to keep updated on local and global economic issues, and trust your judgement but not your intuition.

Most important of all, do not try to follow in the footsteps of well-known market players. They are in the market to make money – from people like you and me.

That was the long answer. The short answer is: NO!

What kind of an investor are you?

Almost every evening, before dozing off to sleep, I get my daily ‘fix’ of TV watching. During the weekends, it is usually the live telecast of a soccer or a tennis match. Occasionally, a golf tournament. But during weekdays, it is invariably a wild life programme. The eternal game of life and death that plays out on the vast grasslands of Africa is fascinating to watch.

Human society has a hierarchical system, based on a combination of political power and money. The animal kingdom has its own hierarchical system, based on size and physical power. The lion is often referred to as the ‘king’ – but the king doesn’t mess around with an elephant or a rhinoceros.

Humans have been endowed with mature brains that can think creatively to plan and implement strategies that can enhance and improve their standard of living. Animals are less endowed in thinking skills and rely more on instinct and training to survive.

What has all this got to do with being an investor? Survival of the fittest works in the stock market, just as it does in the African savanna. To ensure survival and prosperity, you have to first decide what kind of an ‘animal’ you are and what kind of an ‘animal’ you aspire to be.

If you have not inherited a huge sum of money, don’t plan on being a lion of the stock market. If you are not the favourite relative of a powerful minister, being an elephant or a rhinoceros is out of the question. That leaves some of the less powerful and smaller animals.

The next decision – to carry the analogy a little further – is to decide if you want to be a predator, a prey, or a scavenger. A bit of honest self-analysis is needed here. If you have enough knowledge, experience and cash – you can be a leopard or a cheetah. That means playing in the same arena as the big boys, but keeping out of their territory. An example? Stay out of stocks where RJ or RD are known to have large stakes. Those who have been badly wounded in Bilcare or Delta Magnets may know what I’m talking about.

Why should you decide to be a prey? Strangely, some investors do precisely that. They hand over their trading account to a broker or a bank (mistakenly referred to as ‘wealth managers’). They are usually HNIs – meaning wealthy and may be quite powerful – who are just not bothered about the dangers that lurk among the tall grass. Like the zebras and the wildebeests, they become dinner (I mean, their money gets siphoned off by the wealth managers).

‘Scavenger’ sounds like a dirty word. But there are solid advantages to being a vulture or a jackal – if you are willing to do a little hard work. If you have the ability of spotting an investment opportunity (usually a less known mid-cap or small-cap stock) before other scavengers jump onto the bandwagon, you can be in and out with a tidy profit.

Moral of the story? Your investment success will depend on your survival skills and the amount of staying power (spare cash) you have.

Related Post

Don't be a bull or a bear in the stock market, be an African python

Stock Chart Pattern - Bilcare Ltd (An Update)

In the previous update on Jun 30 ‘10, I had concluded with the following comment: ‘The stock chart pattern of Bilcare Ltd had made a brief foray out of the bear market, and is now back again to where it belonged for the past two and a half years. Small investors should avoid this stock.’

My advice was based on the massive 85% bear market fall (from 1830 in Jan ‘08 to 279 in Mar ‘09). Small-cap and mid-cap stocks – including fundamentally strong ones - rarely recover from such huge corrections. Even if they do, it may take years.

Shortly after writing the post, the stock price slid down further to touch a low of 403.30 on Jul 13 ‘10. This was close to its previous low of 400 touched in Dec ‘09. A ‘V’ shaped rally ensued – which strengthened on increasing volume support and periodic corrections down to its rising 20 day EMA. The previous top of 600 was cleared without much trouble, and the stock price went on to touch a peak of 787.40 on Nov 12 ‘10 – an impressive 95% gain in 4 months!

From reader comments on the previous update, it will become apparent that the reason for the renewed enthusiasm for the stock was the acquisition of a German company at a very attractive valuation. There were also rumours that Rakesh Jhunjhunwala had re-entered the stock, after bailing out earlier.

Did I make a mistake in advising small investors to stay away from the stock? A 95% gain in 4 months is not to be scoffed at. But as a long-term investor, I’m more concerned about protecting capital and sustainability of gains. A look at the 18 months bar chart pattern of Bilcare Ltd. will clarify what I mean:

Note that at the beginning (on Sep 16 ‘10) of the last phase of the bull rally – volumes peaked, and so did the technical indicators. Thereafter, as the stock made higher tops, the volume bars and all four technical indicators reached lower tops (marked by blue arrows).

The negative divergences provided ample warning that the good times were coming to an end. The 18 month peak of 787.40 - touched on Nov 12 ‘10 – confirmed the end of the rally by turning out to be a ‘reversal day’ (higher high, lower close). From the Mar ‘09 low of 279 to the Nov ‘10 high of 787.40 may seem a commendable 182% gain, but it managed to retrace less than 33% of the bear market fall from 1830 to 279. Technically, the stock remains in a long-term bear market that started in Jan ‘08, and the entire move from the Mar ‘09 low to the Nov ‘10 top was a bear market rally.

A swift correction from the Nov ‘10 top pierced the 600 level and dropped well below the 200 day EMA to an intra-day low of 529 on Dec 9 ‘10. That was the last warning for the bulls in the stock to get out. As often happens after such sharp corrections, there was a strong pullback rally that took the stock price above all three EMAs to touch an intra-day high of 703 on Jan 4 ‘11. The pullback provided a good opportunity to sell.

The intermediate top on Jan 4 ‘11 was confirmed by another ‘reversal day’ pattern. This time, the force of gravity proved too strong. After a brief bounce from the 200 day EMA, the stock price desperately clung on to the long-term moving average for a few days before falling back into its long-term bear market.

The MACD and ROC are both in negative territory, but have made higher bottoms and are showing signs of recovery. The RSI and slow stochastic are trying to emerge from their oversold zones. Any rally in the stock’s price is likely to be short-lived. The intra-day low of 389.55 – touched on Mar 28 ‘11 – may be tested and broken. In which case, Bilcare’s stock may fall to 350.

Bottomline? The stock chart pattern of Bilcare Ltd is back in its long-term bear market. Die-hard thrill seekers can look for opportunities to bottom-fish for quick gains. Prudent investors should continue to avoid this stock.

Stock Chart Pattern - Bilcare Ltd (An Update)

Ten months back, the stock chart pattern of Bilcare Ltd was struggling to come out of the bear’s grip, even though the fundamentals of the company remained strong. This is one of the hazards of investing in mid-caps and small-caps. They outperform during later stages of bull markets, but underperform when the bears attack.

I had then concluded my analysis with the following comments:

‘The stock chart pattern of Bilcare Ltd is not inspiring confidence. A fall to the 300-350 zone may be a better entry point for bravehearts.’

The 2 years bar chart pattern of Bilcare Ltd shows that the stock did provide an opportunity for making some short-term gains:

The stock dropped to 330 in July ‘09 and then abruptly changed direction and proceeded on a 9 months long rally, making higher tops and bottoms till it touched 600 in end-March ‘10.

In spite of the smart 82% rise in 9 months, the stock barely managed to retrace 20% of its huge bear market fall from 1830 to 279. As mentioned in my earlier analysis, small-cap stocks rarely recover from such a massive correction.

There are a couple of interesting points to observe in the chart. The stock twice tested its Jun ‘09 high of 549 – once in Dec ‘09 and next in Jan ‘10 – but failed to cross it. It promptly corrected down to its 200 day EMA.

The upward bounce after getting support at the long-term moving average the second time finally cleared the hurdle of the previous top in Mar ‘10. The resistance from 549 turned into a support till the stock made the high at 600.

Why didn’t the rally sustain? Probably a lack of follow-up buying. This is reflected in the negative divergences in the RSI and MACD, which made lower tops as the stock hit a new high.

The correction is going on for 3 months, and both the stock and its 50 day EMA have dropped below the 200 day EMA. Today’s sharp fall was on high volumes and doesn’t augur well for the bulls.

The MACD is in negative territory and below its signal line. The slow stochastic is in the oversold zone. The RSI is ready to drop into its oversold zone. It is possible that the stock may see a bounce up to the 200 day EMA. Use the opportunity to exit, if you haven’t done so already.

Bottomline? The stock chart pattern of Bilcare Ltd had made a brief foray out of the bear market, and is now back again to where it belonged for the past two and a half years. Small investors should avoid this stock.

Stock Chart Pattern - Bilcare Ltd

The stock chart pattern of Bilcare Ltd is almost a mirror-image of the Sesa Goa chart pattern we looked at yesterday. Sesa Goa had moved up to make a new all-time high. Bilcare is struggling to get out of the bear market. Let us find out why.

Bilcare Ltd can best be described as a pharmaceutical ancilliary company. Starting out in medicine packaging, they have now morphed into a clinical trial supplies, services and project management company, with offices in USA, UK and Singapore.

Their related services include solutions for compliance and brand protection issues, as well as educational programmes to create a pool of clinical trial technicians.

Consolidated sales in Mar '09 grew 31.5% to Rs 856 Cr and EBITDA grew 19% to Rs 194 Cr. With good growth, positive cash flows from operations, regular dividends, P/E < 11, P/BV < 2, Debt/Equity < 1 - this is an almost perfect example of Graham's 'value pick' criteria.

So why is the stock languishing? Two words: Rakesh Jhunjhunwala! The big bull, a big shareholder and director, recently resigned from his directorship in the company and sold a part of his stake. That was a trigger for the bears, who had already mauled the stock, to launch a renewed attack.

The 1 year stock chart pattern of Bilcare Ltd is a clear example why a stock chosen on the basis of fundamental analysis alone can become a 'multi-sagger' :-

The stock had made a low of 275 on Jun 14, '06. It then climbed dizzily all the way to a bull market top of 1830 on Jan 1, '08 - only to give up the entire gain as it dropped like a stone to a low of 279 on Mar 9, '09. Such a 'mountain-like' pattern makes it very difficult for any stock to recover its former glory.

The stock rallied with the rest of the market on sharply higher volumes and briefly went above its 200 day EMA, as it made a high of 549 on Jun 4, '09. The correction started almost immediately, and the long-term average quickly turned into a strong resistance level.

The efforts by the stock to remain above its 50 day EMA has also been thwarted, and now the medium-term average has switched from a support level to a resistance level.

The MFI is below the 50% level and moving down. The slow stochastic has just slipped below the 50% level and the %K line is below the %D. Of late, down-day volumes are higher. Looks like the bear grip will remain strong for a while.

Bottomline? The stock chart pattern of Bilcare Ltd is not inspiring confidence. A fall to the 300-350 zone may be a better entry point for bravehearts - but only after thorough homework.