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While the market breadth is quite weak, investors should not be surprised by a few accidents here and there. In the last few sessions, there have been quite a lot of breakdowns being witnessed by investors, primarily on account of their Q2 FY23 results. Recently, Divi’s Laboratories Ltd. (NS:) cracked around 9% after it reported a 29.6% drop in Q2 FY23 income (QoQ basis) to INR 493.6 crores and today another pharma stock encountered an accident.
Aurobindo Pharma (NS:), which is a INR 31,722 crores big pharma business and is engaged in producing oral and injectable generic formulations and active pharmaceutical ingredients (APIs) witnessed a fall of over 14% in today’s session, although its earnings report is yet to be made public.
Image Description: Daily chart of Aurobindo Pharma with volume bars at the bottom
Image Source: Investing.com
Yesterday, the stock plunged 2.85% and today it is trading 14.15% lower at INR 467.5, by 1:38 PM IST, delivering a massive breakdown on the charts. The fall has also been accompanied by volume expansion, as a total of 6.88 million shares have exchanged hands so far, which is around 420% higher than the 10-day average volume of 1.21 million shares (recorded yesterday).
In technical parlance, a trend backed by a good volume expansion is generally considered to be more reliable and therefore investors should avoid any kind of bottom fishing in this counter, at least till the results are out. Another important parameter of a strong trend in the derivatives market is the expansion of open interest. Open interest is the total number of contracts within a specific expiry that are outstanding or not yet closed/expired. If OI increases with the trend that also increases the reliability of the move.
In the case of Auropharme November 2022 futures, the OI in today’s session jumped to 14.9 million of 1.49 crore shares which is the highest in the current expiry. This is definitely a bad sign for long holders and both the volume & OI jump are indicating a potential for a further downside. However, the Q2 results are due to be out on 12 November 2022, the market could also probably be discounting some bad numbers after which a bounce could come.
Even if a bounce from here materializes, which is very much possible considering the highly oversold status of the stock, investors should not mistake it for an uptrend. There is some serious selling going on in this counter and by the time of writing it is also nearing its 2nd circuit limit of 15%.
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