To The Moon

A sizable correction is seen in the market. Almost all the counters were corrected significantly. It seems the smart money will prefer the stable counters, and pharma can’t be missed out. The entire pharma sector has seen a sizable time correction for a long time and is poised for a decent rally. Herein I share my technical observations on one of the giant pharmaceutical companies, Lupin.

Monthly: Cycle

In the last two decades, the counter has witnessed a 25 months cycle. This cycle has been consistent and almost worked spot on. Stock is either in sideways or rallied (positive/negative) during the cycle phase. Recently, we saw a correction in the stock. Considering other observations, sideways behaviour is likely (i.e. recovery till the zone from where correction started).

Monthly: RSI

Stock is decently respecting the 12–13 yrs old yellow trendline. Recently, the counter again consolidated on the support trendline and held that zone well. The momentum indicator, RSI, is making lower bottoms, whereas the price is making higher bottoms, confirming hidden bullish divergence. One can consider this counter for accumulation (observation being on a higher timeframe).

Monthly: Fibonacci

Fibonacci works well to identify support, resistance and potential targets (in case of extension). From the previous high of 2015, the price came down to extreme lows of 500 zone. That swing is considered to find resistance. Price bounced from the lows and halted exactly near 50% of the retracement of the swing (1300 zone). Again, it declined to the vicinity of the previous low. That last swing is considered to find support for the present decline. The blue line of 88.6% offered the support and price made (kind of) double bottom (in fact higher bottom). A superb bargain buy opportunity seems to be on the cards.

Weekly: RSI

The way we witnessed behaviour on the monthly chart, similar behaviour is seen on the weekly chart, where the price is making the higher bottom, and RSI is making a lower bottom, making it hidden bullish divergence. Also, the weekly RSI is about to cross the 50 zones, so momentum may emerge anytime soon.

Weekly: MACD

MACD is a lagging indicator and confirms the emergence of a trend. Multiple ways to study MACD, one of them being a crossover. Here we can see that MACD came down to extreme lows (like during 2017–18) and is now recovering from those levels. MACD Crossover is noticed on the chart. This can be considered the first sign of bottoming out. One can focus on the chart formations to consider further action.

Daily: Ichimoku

Ichimoku is certainly a lagging indicator, but the signals generated by the same are astonishing. On the daily chart, the price entered massive sideways consolidation. Due to sideways consolidation, the Kumo cloud turned narrow, and the price could decisively cross the Kumo cloud on the higher side with decent volumes. The crossover coincided with Tenkan — Kijun crossover, confirming short-term bullishness. One can start accumulating the counter as it sustains above the cloud.

Monthly: Ratio chart: Lupin v/s Sun pharma

This is the ratio chart of Lupin v/s sun pharma. Very clearly, Sun pharma seems to be outperforming Lupin for many years in the recent past. But the ratio chart has come to the zone from where it took a bounce in the past. It is also consolidating near that zone for 4–5 months. Looking at the past, there seems to be a bright opportunity of going long on Lupin over sun pharma.

Monthly: Ratio chart: Lupin v/s Glenmark

The ratio chart here shows a clear uptrend, confirming Lupin’s bullishness over Glenmark. Lupin underperformed in the short term, but the chart reached the support trendline, and the trendline is offering decent support. It seems better days for Lupin v/s Glenmark will be back soon.

Monthly: Ratio chart: Lupin v/s Nifty Pharma

Pretty long underperformance of Lupin v/s entire Pharma sector is seen. The fall on the chart was brutal. But one can see hidden bullish RSI divergence for an entire decade. Price action is also taking support at 78.6% of the retracement zone. It’s certainly worth looking at Lupin over the entire sector.

Putting it all together

Looking at the 25 months cycle, bullish hidden RSI divergence, Fibonacci retracement of 88.6% and higher bottom, hidden bullish divergence on weekly RSI, MACD crossover from extreme lows & Ichimoku cloud crossover with Tenkan Kijun crossover on the daily chart is making the counter attractive from short term to positional term. The ratio charts of Lupin with Sun Pharma, Glenmark and Nifty Pharma give more conviction of likely outperformance of the counter over its peers. As most of the charts are of a higher timeframe, one needs to have a positional approach for the discussed stock.

This article was originally published on Blog by Tickertape on 05 October 2022.

Kunal is a fund manager at The Streets, a private fund. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.