Biocon: Formulated for good returns

India Infoline News Service | Mumbai |

The stock failed to sustain at higher levels after breaking past its previous peak in January 2014 which led to a phase of consolidation on the weekly chart.

CMP R507, Target Rs635, Upside 25.2%

Cup and Handle Formation

The weekly chart of Biocon suggests that it is on the verge of breaking out from 4-year ‘Cup and Handle’ formation. The Cup formation ensued in October 2010 after it failed to sustain a run-up from Rs273-473. Since then, the stock has seen a steep decline and thereafter a steady recovery from low of Rs208 in July 2012.


False breakout

The stock failed to sustain at higher levels after breaking past its previous peak in January 2014 which led to a phase of consolidation on the weekly chart. This period of sideways movement can be best described as a “Handle”, which is visible on the right hand side of the cup in the chart below. A breakout from the handle is likely to signal a continuation of the prior advance. In April, Biocon had a false breakout from this pattern and the stock retraced lower.


Breakout after a consolidation of 6 months

However, after six months of sideways consolidation in a flag pattern, the stock appears to have given a breakout on the daily chart as it surpassed its previous peak with higher-than-average volumes. Prior to this breakout, during the process of consolidation, handle had retraced up to ~1/3rd of the previous up-move which indicates bullish bias in the stock.


Upside momentum likely to continue post the breakout

The ferocity of the up-move, once the resistance of Rs515 is broken, could lead to a sharp rally in the stock. Technically, the stock is showing strength and given the positive oscillators set-up, the stock could outperform in the medium-term as long as it sustains above the neckline of Rs480. We recommend a BUY on the stock for a conservative target of Rs635 with stop loss of Rs445.

 

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