Technical Analysis

Dissector: Health Care Index in medium-term uptrend

Yoganand D. | Updated on April 14, 2012 Published on April 14, 2012

In this week's dissector we take a close look at BSE Health Care Index which has outperformed the benchmark index, the Sensex last week.

The BSE Health Care index climbed 1.9 per cent, while the Sensex declined 2.2 per cent. While BSE FMCG and BSE Auto also outperformed the Sensex, BSE IT Index and BSE Teck Index were major underperformers, tumbling 11.5 per cent and 9.6 per cent , respectively.

BSE Health Care Index (6,693.9), the benchmark for tracking healthcare stocks, constitutes 19 scrips.

Sun Pharmaceutical Industries tops the weight in the index with 18.3 per cent allocation, followed by Dr Reddy's Laboratories with 16.6 per cent. Cipla and Lupin have 12.3 per cent and 10.4 per cent weights respectively.

The index has been on a long-term uptrend since its 2002 trough at around Rs 1,140.

After taking support from its significant base level around 2,500 in early 2009, the index continued its long-term uptrend. Breaking through the long-term key resistance at 4,600, it picked up the pace and rallied until it registered a high at 6,871 in January 2011.

Since then, the BSE Health Care Index has been on an intermediate-term sideways consolidation phase in the broad range between 5,800 and 6,800, which is positive from a long-term perspective.

Strong break through of the important resistance at 6,800 will strengthen the bullish momentum and pave way for the index to rally to 7,000 and then to 7,500 in the long-term.

But, inability move above 6,800 or 7,000 levels can pull the index down to its key support levels at 6,200 or to 5,800. Next key supports are positioned at 5,500 and 5,200. Only an emphatic decline below 4,600 will mar the long-term uptrend.

Medium-term view

The lower boundary of the index's sideways consolidation at 5,800 consistently cushioned the index between August 2011 and December 2011 from declining further. Finally, the index gained bullish momentum in last December and has been on a medium-term uptrend. While trending higher, the index penetrated key resistance at 6,200 in January this year and then 6,500 in late March. The index is trading well above its 50 and 200-day moving averages. However, it is on the brink of testing significant long-term resistance at 6,800 in the ensuing weeks. Both the daily and weekly relative strength indices are featuring in the bullish zone implying upward momentum. Decisive rally above 6,800 will take the index higher to 7,000 and 7,200 in the medium-term.

Conversely, inability to surpass 6,800 can pull the index down to 6,500 and then to 6,200 in the same time frame. A fall below 6,200 will mitigate its medium-term uptrend and drag the index down to 6,000 or 5,800.

>yoganand@thehindu.co.in

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