Last Updated on Mar 15, 2022 by Ayushi Mishra
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, 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.
Folks, as I mentioned in the last technical analysis report, it’s one of the worst times for mankind, but the best time for investment. Expensive stocks will see steep corrections, sector rotation will begin, and underperforming sectors may pick up soon.
Herein I share my view on Lupin. Kindly note that it is a trend reversing counter, and so a positional approach has to be adopted. (Note: Most of the charts are on Log scale)
Table of Contents
Monthly chart – time cycle analysis
On the monthly chart, the stock has shown a typical cyclical behaviour for two decades. The 25 mth – 55 mth cycle has been repeated for decades with almost accuracy. The most recent cycle has completed 50 bars so far. Will history repeat under technical analysis assumption? Well, it seems so : )
Monthly chart with RSI
Since 2018, RSI started making higher bottoms, whereas stock continued making lower bottoms till March 2020. After creating bullish divergence, the stock spiked up and again came down in recent times. As of the time, RSI is still making higher bottoms (suggesting accumulating strength), and the stock has come down near the previous bottom (without much selling volumes compared to buying volumes), offering one more buying opportunity.
Monthly chart with Ichimoku (partial)
For most of its life, the counter remained above Ichimoku Kumo Cloud. It broke the cloud during 2018 and witnessed a sharp decline in price. Off lately, price reclaimed Kumo cloud, challenging downtrend. Though price broke cloud last month, the ongoing month is showing reclaiming of the cloud by rejecting downside. Also, the future cloud is turned bullish and remained bullish, suggesting a ray of hope for a limited downside.
Weekly line chart with trendline
Sometimes a longer-term trendline works awesome for accumulating the counter. Here is the one since 2004. The counter tested the trendline almost five times in the past, respected the same and continued its uptrend. The ongoing price has just reached the same trendline (which has remained intact for 18 yrs), thus offering the best positional opportunity for longs with the best risk-reward ratio.
Weekly chart with Fibonacci retracement
The most recent decline, in context with the previous upswing, seems to have halted at 78.6% retracement level with bullish engulfing candle. Also, the recently formed bottom is just near to the point from where the previous rally started. No confirmation yet, but there is a possibility of limited downside from hereon and certainly the best level to accumulate the counter.
Weekly chart with RSI
Very clearly, the counter has made a higher bottom as per the last candle, whereas RSI continues to form lower bottoms. This is considered as a bullish hidden divergence. This view again goes in line with previous views for accumulation.
Weekly chart with bollinger bands
Price was decisively falling earlier, and most of the candles were outside the lower Bollinger band. The last candle opened outside but closed inside the band, validating mean reversion possibility as per the indicator. The swing target of 870 zones is activated as per weekly charts.
Putting it altogether
Looking at monthly chart with a time cycle of 2 decades, the longest trendline of 2 decades, Ichimoku Kumo Cloud, bullish RSI divergence, weekly chart formation with bullish RSI divergence with Fibonacci perfect retracement and mean reversion theory of Bollinger band, I think this can be the perfect accumulation zone for the counter with long term investment horizon in mind.
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 at the counter. Prefer to take the advice of your financial advisor before initiating any position.
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