Last Updated on Aug 19, 2022 by Anjali Chourasiya
This article is authored by Kunal Rambhia, a fund manager at The Streets, a private fund. He has been in the equity market since 2010, in various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW and is a visiting faculty in multiple colleges.
Wishing you all a happy 75th Independence year; let’s take the pledge to be financially independent. Coming to markets, we witnessed a massive surge in indices. As I keep discussing regularly in my articles, one should always focus on sectoral rotation and try to find a strong counter. I feel that the pharma sector may take the lead in the time to come, and Glenmark Pharma looks strong to me as of now. Herein I share my technical observations on the said counter.
Table of Contents
Monthly: Fibonacci Cycle
Since the inception of the stock, the Fibonacci cycle has been plotted. The major tops and bottoms of the counter are seen almost near the time cycle zone. The previous month made a low on the support trendline (from 2005 till now). That month is also coinciding with the 3.236 Fibonacci level. It seems like an intermediate sideways cycle is over, and there is a possibility of the beginning of a new rally. The upcoming rally seems to be positive as the stock prices have taken support of the 2004-2022 trendline.
Weekly: Trendline + Fibonacci Retracement
Glenmark remained in the lower channel between 2015 to 2020. The counter witnessed a breakout during 2020 and made a decisive attempt to come out of the channel, making a high. The correction after the recent top halted at 61.8% retracement zone, and the stock is holding up trend well. There is a bright possibility that the counter may make higher bottom near the present zone and soon resume its new up rally.
Weekly: MACD
MACD is a lagging indicator. It gives late confirmation of the ongoing rally. There are multiple ways of looking at this indicator, one of them being a crossover. As we can see, the price remained in an intermediate downtrend, and MACD remained below the zero line. Alongside other discussed observations, the MACD is giving positive crossover. This can be the earliest sign of possible trend reversal.
Weekly: Bollinger Bands
Bollinger Band works well for mean reversion trade as well as breakout trade. The midline of the Bollinger Bands has offered decent resistance after a recent correction. After the recent bottom, the midline (placed nearly at the 400 zones) can be considered for breakout trade and the beginning of a new uptrend.
Daily: Price action + RSI
Price is just into a sizeable downtrend, but well respecting the trendlines plotted on the chart. The trendlines are forming a Falling Wedge formation. The mere end of formation is where the falling wedge is getting narrow, and RSI is making higher bottoms too, which is forming bullish RSI divergence. Bullish formation and bullish RSI divergence are making this counter an attractive one.
Daily: MACD
MACD divergence + Crossover + above zero line is seen on the same price formation. All positive signals are on MACD, which confirms the likely bullishness going forward.
Daily: Ichimoku
Ichimoku is one of the best trend-following indicators. This indicator generates multiple signals for taking up views. Here I plot only Kumo Cloud. The cloud offers support and resistance to the stock. Here, the upper line of the cloud coincides with the resistance line and offers resistance. Breakout of trendline and breakout of cloud can offer one of the wonderful opportunities for creating longs.
Weekly: Ratio chart
Here is the ratio chart of Glenmark and Nifty Pharma. Data from 2018 till now is plotted. The first bottom was in place during 2020, and data again reached almost a similar bottom. The recent fall is forming a Falling Wedge formation. RSI is forming a bullish divergence along with a bullish pattern. Looking at all observations, the outperformance of Glenmark is likely.
Putting it all together
Looking at the time cycle on the monthly chart (3.236 Fibonacci level), channel breakout and higher bottom near 61.8% of retracement on a weekly, and MACD crossover on weekly, all observations are supporting a bullish view on Glenmark. A possible breakout on the weekly Bollinger band, falling wedge with bullish RSI divergence, bullish divergence on MACD and MACD crossover above zero line on the daily chart also suggest the same. The weekly ratio chart of Glenmark with Nifty Pharma shows a bullish Falling Wedge with bullish RSI divergence, confirming the likely outperformance of Glenmark. Daily chart resistance line with Kumo cloud can be the earliest sign of a breakout.
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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