Cipla shares have fallen to new 52-weeks low of 457 Rs after the company’s March quarter numbers came below market expectations. This stock was the only loser among the stocks on both BSE sensex and Nifty50 stocks today.
India’s fifth-largest pharmaceutical company reported a sharp 69% year-on-year drop in net profit to Rs 81 crore in the quarter ended March 2016 (Q4FY16), on account of one-off expenses related to inventory reduction and closure of business in some small-sized foreign markets.
Whenever a good stock falls to 52-weeks low, many investors jump with all guns blazing to bottom fish in order to reap huge profits but most of them fail terribly in figuring out the bottom of these stocks.
Is Cipla a bottomed out opportunity?
Cipla share prices were falling gradually right from Aug’2015 after it failed to breach the resistance offered by the all time highs; the downturn was initially triggered by global sell off in August.
The stock enjoyed a strong support Rs. 580, but the same couldn’t hold as the global sell off momentum intensified in Feb’16.
The breaking of support at Rs. 580 confirmed the “double top” breakout (some analysts say it’s rectangle breakout) and the fresh selling interest in this stock.
Cipla shares kept falling amidst the market recovery and found some relief at Rs. 494 (which happens to be 61.8% Fibonacci line retracement); the stock did try to recover from the lows but the choppy market in the last 1 and half months didn’t support the stock recovery much.
The stock found support once again at 494 rs yesterday but the poor results shattered the support and the share prices have tumbled below that level to new lows of Rs. 457.
With both the major supports gone (one at 580, another at 494) and beaten down results, the selling pressure is still “ON” & the current levels doesn’t give any kind of indication to be the bottom.
To summarize in one line – It’s good to stay away from this stock for time being.
Where is the bottom?
According to some of the prominent technical analysts like John Murphy, Robert D. Edwards etc., whenever a double top or bottom breaks out, the minimum target level one can expect the stock prices to provide is the price difference of the highs and lows of the pattern from the breakout price.
If we apply the above theory to find the minimum downside of the Cipla shares let’s take the difference of the double top highs and lows i.e.(755 – 585 = 170) and subtract the same from the breakout price of 580, which means the stock prices may go down up to 410 levels.
Co-incidentally, 410 levels happens to be the 50% Fibonacci retracement line as well thus adding more conviction that there may not be further slippages and even if there’s one the damage is limited since the stock find another strong support at Rs. 367.