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This week wasn’t a good one for long-only investors, especially in the pharma space. The index fell 1.6% this week, the biggest weekly fall since mid-May 2023. However, one small-cap pharma stock that had gone against the grain and delivered a 4.2% return to investors was Lyka Labs Ltd (NS:).
This pharma company has a market capitalization of INR 384 crore and trades at a TTM P.E ratio of -24.36. Although the company is currently a loss-making one, the technical setup of the stock is painting a bullish picture in the near future.
Image Description: Daily chart of Lyka Labs with volume bars at the bottom
Image Source: Investing.com
Firstly, unlike many pharma stocks, this one is not trading at sky-high levels, which already gives some margin of safety on the downside in case the stock takes a U-turn. Looking at the price action since 20 June 2023, the stock is forming a U-shaped bottom, also known as a rounding bottom, on the daily time frame.
This pattern depicts a gradual shift in the supply-demand equation with the weight tipping in favor of the latter. Meaning, that bulls are gaining control over bears and as a result, the stock is inching higher, from a brief sideways movement at the bottom of the pattern.
On Friday, the stock jumped 4.7% to INR 121.6 and closed at the highest level since 21 June 2023. This up move was also supported by a volume expansion of 387K shares which is over 251% higher than the 10-day average of 110K shares. This is a good indication of increasing investors’ demand.
To confirm the uptrend, the stock is trading at the upper end of the Donchian Channel (daily, 15). This is a trend-following indicator and depicts the direction of the trend.
With many signals pointing to the same conclusion – a probable uptrend, traders can put this counter on the watchlist for the next week to seize long opportunities.
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