Technical Check: A breakdown on charts suggests a break below Rs 4,000 for this pharma stock

Dr Reddy’s Laboratories Ltd fell over 5 per cent in last one year compared to 15 per cent upside seen in Nifty50 in the same period and technical charts structure suggests further pain in the next 1-2 months, suggest experts.

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The pharma major with a market capitalization of more than Rs 70,000 cr on the BSE hit a 52-week high of Rs 5613 on 7 July 2021, and post that the trend went sideways.

The stock is trading below most of the short- and long-term moving averages which suggest further pain in the near term. The stock breached its 200-DMA placed at 4864 on 18 October and since then it has not been able to recoup losses, Trendlyne data showed.

The pharma stock fell a little over 13 per cent so far in 2022. It took support above 4,100 levels back in January 2022, but this support is unlikely to hold for long.

Momentum oscillators are seen shifting in sell mode which suggests further selling pressure in the near term that could take it below crucial support of 4000.

Dr Reddy’s Laboratories has been a major underperformer from the Pharma space. Technically, Dr. Reddy's Laboratories Ltd (DRL) stock price pattern appears ugly at current levels.

Technically speaking, the biggest negative catalyst is prevailing overbought technical conditions and the recent downward trend in the stock price could trigger some more corrective declines and there is limited room on the upside, suggest experts.

“The 200-DMA of the stock is around Rs 4873 levels and 50 DMA is around 4343. Firstly, overbought technical conditions prevail on the daily charts on the backdrop of a probable dark cloud cover pattern on the monthly charts,” Prashanth Tapse, VP Research Mehta Equities Ltd, said.

“The momentum oscillators are seen shifting in sell mode signalling further sharp corrective down move. The stock price has already signaled a break down from a “lower consolidation zone” on the daily —— confirmation of the same below Rs 4167 mark,” he said.

The immediate downside risk below a Rs 4167 close is at Rs 4000 psychological zone and then aggressive targets at Rs 3771 mark.

“Establishing short positions at CMP should be the preferred trading strategy, with immediate targeting Rs 4167 (Support) and then aggressive targets are seen at Rs 3771 zone. Stop above Rs 4711 (Resistance). Holding Period: 1-2 Months,” recommends Tapse.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)