Time to Book Profits in Pharma Stocks

Jan 15, 2021

Have you heard the old market saying, 'buy on rumour, sell on news'?

This is especially true of pharma stocks in the market today.

I believe, it is the right time to take money of the table in pharma stocks.

This may be contrary to the prevailing narrative but I have very good reasons for my conviction.

Watch today's video to find out...

Hi viewers. Welcome to the Fast Profits Daily video series. Myself Brijesh Bhatia. There is a an old saying in the markets that buy the rumours sell the news.

Why I am saying this in this video is we think that one index which fits into such kind of saying is CNX pharma. Pharma in 2020 was one of the strongest out performer among the indices gaining 60% in the year but now if you look at the technical structures, we think that 2020 was buying the rumours where due to covid-19 there was a possibility that the medicines would be out, or the vaccines will be out and such pharma companies will be the beneficiaries.

There were a number of pharma companies which were fighting for the drugs. Obviously the one which would get the vaccine could be a multi billionaire. Now we are in 2021. Yet nearly after more than a year, we are unable to find the vaccines now and it's been announced that we might see vaccines coming out soon.

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So that's the reason we said that buy the rumours, sell the news. Now if you look at the news, it's about to come on the vaccines being out. With that pharma index might see some selling pressure, not the buying one.

There could be a knee-jerk reaction where market might see an uptick in the momentum but we are expecting profit bookings to be on the cards for the pharma index. Why?

Again, this is looking for a short term bias, not a long term trend where this could play out but if you look at the short term charts, if you look at the screen, I have seen the daily chart over here.

Now, if you look at the March to the August, strong performer pharma. We have been a pharma gaining a strong uptrend in that phase from March to August and since August till I guess November, we have seen index consolidating and the other index started out performing.

If you look at the blue, the horizontal lines which I have drawn, the parallel horizontal lines, we have seen a breakout coming out of that index but at certain amount of time, it's showing some sign of fatigue. We are not looking at the momentum to be on the stronger side.

Now if you look at the rising channel the red lines on your screen, it's indicating that the index is resisting around 13,500 and if I just look at the highs, it was precisely 13,476. So it's been resisting around 13,500.

Now in January 2021, what is happening? This is the first index even the markets are trending higher, this is the first index which is trading below its, I would say the benchmark sectoral index which is a well-known, which is trading below the five days low.

So what it does indicate is that even though the markets trending higher, we are about to come out with the vaccine and this index is indicating a sign of fatigued momentum on the higher side. We have seen lows of around 12,994, just a shade below 13,000 key level. It is trading at a 13,130-13,140 levels. I think if you look at the higher levels, it has been resisting.

So I am not playing the stock specific movement here but if I look at the index, it is showing me that some fatigue could be seen or profit booking can be seen in the pharma space. So that's the reason I have said that buying the rumours where all the companies were fighting for the drugs and still, we are more than one year with the covid-19 and are unable to see the drugs coming out.

So sell the news, which means if the drugs come out we might see a knee jerk reaction on the positive, but this opportunity should be taken as a profit booking in the pharma space.

The technical indications, if you look at the RSI on the lower panel of your charts, it's been resisting at the key over bought zone. So multiple resistance at the same level indicates that this strength is not in the bulls court and we might soon see some profit looking coming on the pharma space.

So as I said, buy the rumour sell the news. Profit booking on the news of the vaccines coming out, look for profit booking at the higher levels.

If you are looking for the longer-term, we still think that the longer term trend has not been changed for pharma, but shorter term it certainly that over brought zone, profit booking can be expected on the street in the pharma space.

So no profit booking if the vaccine news are out and I don't know the heard on the street is saying, news is that probably we might see in January or February the vaccine might be out. So still not sure about the news, but I certainly believe that the sell on news is on the card for the pharma space.

So that's the Fast Profits Daily video for today's pharma space. If in case, you haven't subscribed to the YouTube channel of Equitymaster, please do click on subscribe so that you receive the notifications regularly when we release the Fast Profits Daily videos and also subscribe to our newsletter on our Equitymaster website.

Signing of Brijesh Bhatia. Thank you.

Warm regards,

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

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2 Responses to "Time to Book Profits in Pharma Stocks"


Jan 20, 2021

one correction. It must read Long term investors who DO NOT WORRY about shortterm volatility or find NO need to book profits frequently



Jan 19, 2021

Brijesh's advice to book profit in Pharma stocks is for Traders only or Long Term investors also who do worry much about short term volatility /booking profits frequently

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