Nifty Pharma Index exhibits an interesting pattern

Nifty Pharma index is forming a base around 8000 levels for the last one year. After retracing 61.8 per cent of the 2011-2015 rally from 4300 to 14020 levels, it is trading around 8000 levels. It must be noted that no significant lower low had been made since then. However, the recent low of 7550 will remain in focus now. In the past three weeks, the index has been making higher highs and lows. Also, the price movements show Trader Vic’s rule of 2B bottom reversal pattern.

The Trader Vic’s rules of 2B bottom reversal pattern is when prices make a new low, they pull back for a healthy retracement. After retracement, the price tries to re-test the new low. But when this test fails, it does not maintain the prices above the new low, it signals a potential trend reversal.

There is RSI positive divergence on a weekly chart and it has given early signs of reversal by reaching above 40.40 level. Currently it is moving around 42 levels. The MACD line is crossing the signal line from almost historic lows. The histogram has turned into green territory, suggesting the bullish momentum is picking up. The Stochastic Oscillator has already given a buy signal. The majority of the index components are coming out of basing formations.

In this scenario, if the Pharma index sustains above 8000 level for at least two weeks, there are chances of the index reaching 8800 levels in next quarter. Be positive with the sector and select strong stocks for portfolio building.