Analysis: DRREDDY (RDY)

Today’s pick is [stockquote]DRREDDY[/stockquote]. The last year saw the stock trading in a 1500 to 1800 range and the stock is in an up-trend since July lows. In the last three month period, the stock was up 5.5% vs. the Nifty’s 8.3%. The stock is approaching 52-week resistance at 1815 levels, after bouncing off the support at 1500 levels.

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Oscillators RSI and CMO are at currently at 64 and 39 and are closing in towards the over-bought territory.

MACD line and the signal line are departing from each other on a positive note; the histogram levels are rising as well in-sync with the short-term up-trend.

The GMMA chart shows both long-term and short-term lines fanning out. If this continues, it would be extremely bullish for the stock.

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DRREDDY’s average correlation of 0.33 with the Nifty is positive. The stock will not replicate the movements of Nifty closely because of the low co-efficient. [stockquote]NIFTYBEES[/stockquote]

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DRREDDY has a historical volatility in the range of 0.25 to 0.45 which is a very narrow range. The scrip’s volatility is currently in the middle range and hence should not be a concern.

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Analysts already have high expectations regarding this stock, as is evident from the very high proportion of the buy and outperform calls. A single earnings miss from the firm, or an analyst downgrade might trigger a steep slide in the stock.  Also, insiders have sold about Rs. 3.5 Cr. worth of NCD’s in the last one month period.

Looking at these technicals a short-term hold is suggested. A break-out/continued resistance at the 1800 levels will be essential to direct the stock either to an up-trend/down-trend.

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