Thursday, October 8, 2009

Zandu Pharma: Fluttering with the Flag?

The stock price of Zandu Pharmaceutical Works Ltd. has spurted at 10% up circuit to close at Rs.10925 on the bourses today. The stock made a low of Rs.9921 during the day. Zandu Pharma is a Small-cap company with market capital of approximately Rs.800 to Rs.900 crore which is usually traded at low volumes. On the Daily charts of Zandu Pharma, a 'likely' Flag pattern is visible which is a short-term Continuation indicator marked by a small consolidation & declining volumes in between the over-all journey.

(Please refer to the Risk factors associated while trading in this stock, at the end of this post)

Charts Courtesy:

Flag Pattern defines 'Flag' as, "A technical charting pattern that looks like a flag with a mast on either side. Flags result from price fluctuations within a narrow range and mark a consolidation before the previous move resumes."

1) A Flag pattern is a Continuation pattern characterized by an up trend followed by consolidation with declining volumes. The pattern witnesses a breakout from the consolidation pattern leading to a spurt in prices in the same direction as prior established trend.

2) Usually a Flag pattern, as a whole, is preceded by a series of dull and low volume sessions packed with in a tight range, though this is not a universal rule. Later a break in stagnant price action occurs leading to almost a vertical spurt in prices with strong up trending momentum. This zone of price spurt which is characterized by high volume is known as a 'Flag Pole'.

3) After the storm of sharp up move, comes the consolidation period which is characterized by small downside pressure with in a tight narrow range as show in chart attached above. This consolidation phase is driven on the back of declining volumes. Next stage is breakout on the upside as continuation of the prior trend.

4) The last stage is a breakout from the consolidation zone as continuation on the trend established prior to consolidation. Even this last stage can be as furious and fast as the breakout witnessed during the formation of the prior Flag pole marked before consolidation. The length and 'likely targets' for the 2nd Flag pole could be as big as the price movement witnessed during the 1st Flag pole.

Zandu with a Flag

From the above mentioned evidences, I have posted this blog entry assuming that Zandu Pharma stock is in the last stage of formation of 2nd Flag pole. The stock spurted up at 10% Up circuit as I am writing this, which can be construed as a breakout from the consolidation zone of Rs.12500 on the up side to Rs.10000 on the downside. With today's spurt in price action, the consolidation phase can be assumed as being completed before the prior established up trend resumes its up surge.

The usual way of calculating the price target for up move during the 2nd Flag pole could be equal to the length of the price action witnessed during the preceded flag pole at the start of the up trend. In Zandu Pharma, the 1st Flag pole is of a height of Rs.6000, formed during an up move from Rs.7000 to Rs.13000. Assuming that the formation of the 2nd Flag pole has commenced from this date, we can presume that the up move has started from the day's low of Rs.9900, giving us a probable target of Rs.16000 approximately (6000 points added to Rs.9900). The target can deviate by one or two thousand rupees. However, this is just my view and thought on the stock and the pattern that is visibly developing on the chart and it should not be construed as sure shot achievable targets, nor is it a Buy/Sell Recommendation.

Risks Factors

1) Zandu Pharma is Small-cap stock.
2) It is a Low Volume stock and often trades under Circuit filters which may not allow trader a much desirable entry/exit opportunity at the right time.
3) The views about formation of the Flag pattern in this stock is simply my assumption based on my knowledge and signals I am receiving from the charts. There is no surety of any kind that the stock price will move in up ward direction only from here.

Note: The above view on the stock is for Short-term horizon and not an investment/fundamental report. The above views are for educational purpose and should not be construed as a Buy/Sell Recommendation of any kind/nature whatsoever.

Disclaimer: All data, content and/or reports posted by Viral Rajnikant Dholakia on this site are only for information and educational purpose of visitor/readers of this blog. It does not constitute to be a recommendation/offer/advice to buy or sell assets/securities in any form. Individuals/organizations are requested to take an informed call by consulting their Financial Advisor before acting on any matter/data published on this blog. This blog does not warrant of any kind of accuracy, adequacy and completeness of data, ideas or thoughts published in it. This site and Viral Rajnikant Dholakia assumes no responsibility or liability or loss or damage of any kind/nature for your trading and investment decisions and its consequent results.

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