The mean reversion we outlined a few weeks ago has been playing out, but now the major indices are running into sellers at very logical levels.
With that said, one area looks particularly vulnerable at current levels, Pharma.
Here’s the Nifty Free Float Small-Cap 100 running into overhead supply at 5,670 and reversing lower, leaving it more or less in no-man’s land still.
Click on chart to enlarge view.
Here’s the Pharma Sector clinging to support near 8,000, but looking vulnerable to make new lows and continue its structural downtrend.
The primary reason this chart’s in focus this week is because the sector’s largest component, Sun Pharma, failed to reclaim support near 435 and is moving lower once again. We’ve been wanting to fade the stock as long as prices were below that level and believe the path of least resistance is still to the downside.
With sellers maintaining control in Sun Pharma, it’s difficult to picture an environment where Pharma as a group can do well. As long as prices are below 435 we want to be short Sun Pharma, with a downside objective near 282 and avoiding the Pharma sector as a whole on the long side.
Thanks for reading and let us know if you have any questions!