5 More Stocks to Avoid in the Short Term

When the stock market indices go up, some of the folks get excited. I have been asked a hundred times, “Ah! Market is on a roll, how about your portfolio?” Obviously the common man thinks that because the index moves upwards all the stock prices (or at least most of them) need to go up. This is simply not true. The stock market, like any other market just follows the principles of demand and supply gap. For example, if the Indian rupee appreciates, the IT companies will gain less. The market sentiment may turn negative against the software companies and investors may sell off their holdings to book their profits or losses, if any.

Let us now discuss some India stocks that are bearish for the short term.

Cipla Limited:

Chemical, Industrial and Pharmaceutical Laboratories (CIPLA) was founded in the year 1935 by Khwaja Abdul Hamied, who earned a doctorate in Chemistry from Berlin University in 1927. He gave the company all his patent and proprietary formulas for several drugs and medicines, without charging any royalty. Today, the company manufactures hundreds of prescription drugs, over-the-counter medicines (OTC) and bulk drugs, including drug intermediates and active pharmaceutical ingredients. The company registered a net profit of Rs.661 crores in 2006 – 07 in the competitive pharmaceutical industry.

Technically the stock looks pretty bearish. Watch the “falling window” or downward gap on April 27. The stock lost 14% on that day. It continued to make lower highs and lower lows. The bearish break out occurred on July 23, with a small downward gap. It has closed below support for three days in a row now. Next support exists at 180; but if that is also broken stock may fall even further. Given such a technical scenario, it is probably wise to avoid the stock for the time being.

Hanung Toys and Textiles Limited:

The company manufactures soft toys and textiles like home furnishings. The company’s net profit during 2006 – 07 was Rs.27.81 crores. It bagged an export order worth USD 65 million in May.

Head and shoulder pattern has been formed in the daily chart as shown above. The neckline support has been broken yesterday and today, though the volumes are relatively low. The high of the right shoulder has not been penetrated by the stock. Lower closes with increased volumes will confirm the pattern. This could take few more sessions. But it is better not to venture into this stock based on the current trend.

Inox Leisure Limited:

Inox Leisure Limited is a subsidiary of Gujarat Flurochemicals Limited and is the diversification venture of the INOX group into entertainment. It runs 15 multiplexes with 54 screens in 13 cities making it the only national multiplex chain. Inox s also in an alliance with the Pantaloon Group, a partnership that provides Inox preferential access to all real estate developments, which Pantaloon takes up for its retail chain. The company declared a net profit of Rs.24.79 crores in the financial year 2006 – 07.

An example of a “double top” formation during an uptrend can be seen in the daily chart. Just after the previous high of 141.40 was broken by the stock, a bearish “dark cloud cover” candlestick pattern followed by a “three outside down” candlestick pattern was formed. It can be seen from the chart that the support trendline has been broken; further upmoves if, any, should be used only to exit the stock.

Shyam Telecom Limited:

Shyam Telecom Limited is a manufacturer of telecommunication equipments in India. The products include single channel VHF/UHF radio telephone system, 10/20 channel digital UHF radio system, optical line terminating equipment, VSAT systems, wireless in local loop systems, etc. It offers innovative coverage solutions for mobile operators, real estate developers, neutral host providers, businesses, and residences.

It incurred a net loss of Rs.40.52 crores during the financial year 2006 – 07.

Following the amalgamation of its telecom equipment manufacturing division and capital restructuring it got relisted in November 2006. It has never been an investor’s choice, as can be seen from the chart. The volumes have been very low; recently it has broken its support and turned bearish. This may not be an ideal stock to invest or trade for short term.

Zensar Technologies Limited:

Zensar Technlogies is a Pune based IT outsourcing company. It caters to the needs of retail, manufacturing, financial services, utilities, pharmaceuticals, media and textile sectors. It has marketing presence in US, Europe and Asia Pacific regions. The company has operations and a customer base spanning across 18 countries including software development centres in India and China.

It declared a net profit of Rs.33.86 crores for the financial year 2006 – 07.

The supports at 320 and 281 have been broken recently. The heavy volumes just prior to the first bearish breakout confirm the downtrend. The next support exists at 225; however, the technical indicators in daily chart suggest further bearishness. The technical scenario in weekly charts is not encouraging either. It is better to avoid the stock for the short term.