How does one read through what happened this week and what is the outlook?
It was a tough week for the markets. Nifty just a shade below the 17,000 mark and Bank Nifty below the 36,000 mark brings in a lot of anxiety for market participants. But this is a natural correction that the markets were hinting at for the last couple of months. Finally, that correction has come into the indices.
Now, there are a lot of parameters to try and gauge this correction and how far it can go. For example, the Bank Nifty has neared its 200-day moving average. It is just 200-250 points away from testing its 200-day moving average and this could be the first test which the Bank Nifty can do over the last eight or nine months. Hence, that will be one very important support point for the index. The second way to look at is the 100-day moving average support for the Nifty. In the previous two corrections, the 17,100 mark, which is close to the 100-day moving average level, was a key support for the index. We have managed to hold on to the 100-day moving average on the previous two occasions with a margin of 0.5% to 1% error. So, if we manage to just about skirt around this 100-day moving average for the next couple of days, and the volatility drops down, that also could be an indicator that the markets would get back into some stable trajectory.
All in all, we are in a downward trend but a better opportunity to try and short the market would be not when the markets are into an extremely oversold territory but to wait for a bounce like the one that happened in the middle of this week.
How does Nifty Pharma look like on charts? Is interest coming back to this particular sector?
After five straight weeks of negative close, this was the first week of respite for the pharma index. I call it a respite as even though many of the pharma stocks did pretty well for themselves on Friday, there are a lot of breakouts that the sector must provide over the next two consecutive weeks before we can call it a reversal. That said, the texture of the pharma rally was very interesting. It was not the usual large-cap pharma names like Sun Pharma or Dr Reddy’s that were leaders but tier II pharma that did pretty well.
Aurobindo Pharma recovered some 8-10% from its intra-week low while Glenmark Pharma over 10% to 12%. This was also the case with other names like Divi’s Lab, etc. There was a lot of recovery in play. So, whenever you see such kind of recovery, it is typically a short-covering rally which happens because of the oversold nature of indicators for many of the stocks. And once the short covering gets completed, we wait for long built-up formations to happen where traders are more confident about taking long positions.
So, if we see that change happening in the pharma index, which I believe maybe over the next one week or max two weeks, we could see those patterns playing out. And then we could be talking of a more substantial rally in the pharma names. You have to take it step by step. As of now, we could probably play it for a short-term rally, specifically Biocon, Glenmark Pharma, Natco Pharma as they are looking far more attractive than the usual large-cap pharma names.
What are your picks for the week?
For the coming week, many of the pharma names could get into a bounce-back mode. So, one can pick Biocon at current levels. The stock looks attractive. With Syngene bouncing back and breaking above the 200-day moving average, I believe Biocon should also probably try and follow up in a very similar kind of chart trajectory for itself. Keep a target at Rs 400 and stop loss at Rs 340.
The second call would be a sell on Manappuram. It looks quite weak in terms of chart structure. The stock has broken below its major swing support on the short-term timeframe chart. The targets which traders could be looking at should be closer to Rs 160 mark and stop loss for that could be kept at Rs 175.
