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Thursday, May 24, 2012

Stock Chart Pattern - Marico Ltd (An Update)

The previous update to the technical chart pattern of Marico Ltd was posted on Mar 23 ‘11 when the stock had closed at 129.45 (marked by grey vertical line on chart below). Earlier, after touching an intra-day top of 153 in Oct ‘10, the stock had started correcting a little ahead of the broader market. On Feb 9 ‘11, the intermediate correction had ended with a high volume ‘reversal day’ pattern as the stock touched an intra-day low of 112.10 – well below its 200 day EMA.

The 20 day EMA had briefly fallen below the 200 day EMA, but the 50 day EMA did not do so. That was an indication that the bull market was intact and the dip was a buying opportunity. The concluding comments in the previous post are worth repeating: “Small investors should add such stocks to their portfolios for steady gains and downside protection, instead of running after mythical multibaggers. Existing holders can top up their holdings. New entrants should wait for a convincing break above 136 to buy.”

The daily bar chart pattern of Marico Ltd clearly shows that investors would have benefitted by following the recommendation to buy:

Marico_May2412

Shortly after the previous post, the stock price rose to test the support-resistance level of 136 and crossed above. A few days of sideways consolidation in Apr ‘11 was followed by a sharp rise to 150 – an unsuccessful test of the Oct ‘10 peak of 153. The stock price dropped down below its 20 day and 50 day EMAs in May ‘11, but found good support from the rising 200 day EMA.

Another test of its previous top stopped short at 151.80 on May 31 ‘11. This time, the correction received combined support from the 50 day EMA and the 136 level. The subsequent up move comfortably crossed the previous top of 153 and touched a new high of 172.70 on Jul 27 ‘11 – a respectable 33% gain in 4 months.

For the next 6 months, the stock was in a period of consolidation during which the 200 day EMA provided good support – except for a few days in Dec ‘11, when it dropped below its long-term moving average and the 136 level. Dec ‘11 had marked the 52 week low on the Nifty and Sensex charts, while Marico’s stock touched a higher bottom.

The entire 6 months long consolidation formed the ‘cup’ of a ‘cup and handle’ bullish continuation pattern. The ‘handle’ formation took about a month – from early Feb to early Mar ‘12 – with the stock price getting support from the rising 50 day EMA. The next leg of the up move reached a new high of 184.40 on Apr 25 ‘12.

Before touching the new high, the stock started consolidating within a rectangular pattern between 176 and 184 and broke down from the pattern on May 14 ‘12. A drop to the rising 200 day EMA (at about 160) is a possibility, which may provide an opportunity to add/enter.

The technical indicators are quite bearish and pointing to a deeper correction. The MACD is below its signal line and has dropped inside negative territory. The ROC is negative and below its falling 10 day MA. The RSI has bounced up from the edge of its oversold zone. The slow stochastic is inside the oversold zone.

Bottomline? The stock chart pattern of Marico Ltd is undergoing a bull market correction and providing an entry opportunity. At the risk of sounding like a broken record (or a scratched CD), investors should seriously consider adding FMCG stocks like Marico to their portfolios. The high P/E ratios of FMCG stocks should not be a deterrent. Good things are never cheap!

2 comments:

manas_25 said...

sir.. can u pls list out some good FMCG picks ???
wht about DABUR n COLGATE ?

and a nice article !!!!

Subhankar said...

Thanks for your comment, Manas.

Your questions may get answered if you read my post of Apr 15 '12: "Is this a good time to enter FMCG stocks?"