Last Updated on Jan 12, 2023 by Anjali Chourasiya
After a sizeable correction, I feel the downside on indices is done, and now a decisive rally should emerge soon. Anyways, our focus will remain on stock specifics. The Pharma sector has remained more or less underperforming for a long time, and many counters are available near the perfect support zone. One of them is Aurobindo Pharma. Herein I share an investment view on Aurobindo Pharma.
Table of Contents
Monthly: Time cycle
For more than two decades, Aurobindo Pharma has been following 85 months time cycle. The present month is the 85th month of the ongoing cycle. Also, on the chart, I have made a horizontal support trend line in white colour, which is based on the previous major support level. The yellow trend line has been in action since 2004. Earlier it was acting as a resistance, and now it’s working as support (due to a change in polarity).
All observations coincide with each other, making the counter worth considering from buying perspective.
Weekly: Price action and Fibonacci
The counter saw a sizeable correction from the highs of 1,080 to almost 450 levels. The price has finally reached the zone where it earlier took the support multiple times. Compared with the previous bullish rally, this counter rally has halted right onto the 88.6% Fibonacci support level, and this zone is in line with the previous bottoms. The whole decline was almost without volume support, making it even more attractive. The zone of 440 – 420 can be considered a strong support zone.
Weekly: RSI
Price continued its downtrend without pause. But the Relative Strength Indicator (RSI) has stopped falling, forming a bullish divergence on the chart. The best part of this bullish divergence is that it is coming alongside a major support zone. So the reliability of the same is high. Kindly note that bullish divergences are warning signs and not trend reversal confirmations.
Weekly: MACD
Moving Average Convergence Divergence (MACD) is a lagging indicator that is mainly followed by positional traders in the market. An extreme oversold zone of MACD was seen during 2020, and the price witnessed a significant positive rally after that. Recently, MACD halted near that zone itself and now forming a bullish divergence on the chart. This is a good reliable indication, even on the positional indicators. An interesting thing to note is that MACD has formed multiple higher bottoms, which is hinting a minimum downside from the present zone. MACD crossover above the zero line will confirm strength on the counter.
Daily chart: Price action
On the daily chart, the price is clearly in a downtrend. But after placing trend lines, the formation seems to be a falling wedge. This formation confirms reducing volatility and squeezing behaviour. Any breakout on the daily chart can confirm the first sign of trend reversal.
Ratio chart: Aurobindo Pharma Vs Nifty Pharma
The ratio chart was just under the consolidation phase between 2000 to 2014. Post-2014, it entered into a massive uptrend, confirming the outperformance of Aurobindo Pharma over the whole sector. Between 2017 to 2022, the ratio chart entered again into a sideways consolidation. It was taken out on the lower side. The width of consolidation on the lower side of consolidation is just in line with the previous resistance zone from 2000 to 2014. Due to changes in polarity, the same zone may act as support for the chart. There seems to be a bright possibility of stock outperformance from this zone.
Putting it all together
Looking at the monthly 85-period cycle, with multiple major trend lines support, weekly correction support of 88.6% alongside the previous bottoms, and bullish RSI divergence, all confirm the accumulation zone on Aurobindo Pharma. Bullish MACD divergence with multiple bottoms near extreme lows and falling wedge formation on the daily chart suggesting the same.
The ratio chart suggests immediate support and a potential pause on underperformance on the counter. An immediate trigger can be confirmed from the daily chart. But one can keep watch from a long-term perspective.
Statutory Disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open on the counter. Prefer to take the advice of your financial advisor before initiating any position.
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