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.