Buy Glenmark Pharma at Rs 505-495; tgt Rs 571: ICICIdirect

ICICIdirect.com is bullish on Glenmark Pharma and has recommended to buy the stock in the range of Rs 505-495 for a target price of Rs 571 with a stop loss below Rs 465 on a closing basis, in its research report.

Outperformance in turbulent times - Breakout from potential Triangular consolidation: The year 2013 began on an upbeat note. However, the cheer did not last for the midcap space as many stocks took a severe beating through February 2013. While some of the high beta names tanked over 30%, the pharma space remained relatively insulated from the carnage. Within the midcap space, Glenmark Pharmaceuticals exhibited remarkable resilience as the stock went on to consolidate in the range of Rs 550-480 over the past two months. Pictorially, the sideways consolidation since the December 2012 high has taken the shape of a Triangular pattern. Triangles are usually a trend continuation pattern. More importantly, the entire consolidation has rested at a crucial support of Rs 480-470 being the confluence of the 61.8% retracement of the December rally (421-550) and lower band of the rising trend channel (shown in blue), which encompasses the entire price rally since April 2012.

Maturity of current consolidation: Since the major rally from the December 2011 trough of Rs 265, the share price has portrayed a peculiar time cycle for corrective price action. Each sideways consolidation has lasted for eight to 10 weeks before commencement of the next rally. The current consolidation from December 2012 highs has already completed nine weeks, which is double the time consumed by the previous up move that lasted four weeks. After the recent outperformance vis-à-vis the midcap space, the current consolidation is seen nearing maturity and, therefore, provides a good opportunity for medium term players to ride the next up leg.

As per price implication of Triangles, the price range of the largest leg of triangle may be added to the base of the pattern. As the largest leg is measuring 72 points (551-479), the price projected from the base of the triangle provides the target of Rs 571 over the next few months.

50 day EMA support, double bottom on weekly RSI in bull market zone The sideways movement since mid-January has occurred just above the 50 day exponential moving average (497), which has acted as a good base for the price in past consolidations as well. On the oscillators’ front, the 14 period RSI, on a weekly time scale, has formed a double bottom around the bullish reading of 61 while prices remained in a consolidation mode. The momentum indicator sustaining above 60 during the entire consolidation highlights underlying strength in the trend.

Strategy: Buy Glenmark Pharma in the range of Rs 505 – 495 for a target price of Rs 571 with a stop loss below Rs 465 on a closing basis.

Quarterly Shifts by Morgan Stanley

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