Ranbaxy (NSE) - Elliott Wave Analysis - Aug 9th '13

This has been one stock which has gone through a lot of negative news flow in the recent past. The stock has tumbled from a recent high of 578.4 levels made on Sept 4th '12 and we saw a constant decline to 253.65 levels. 

This blog does not cover the fundamental reasons for the stock reacting negatively however I've made an attempt to view the psychology of the market by analyzing it through Elliott Wave Analysis coupled with other useful tools like fibonacci circle, retracement, extension etc.

Thanks to my friend and investor for writing a note to me about Ranbaxy making a series of lows every other day. Question was when do we see it stopping?, is it going to die down completely? lot of negativity placed around this stock from a news flow point of view

During the 3rd week of Jul I started analyzing the chart and found something really interesting and which is what I'll be sharing it with all of you. 

To understand the terminologies of course you should know about what is an Elliott Wave and of course terms to do with 5 impulsive waves and 3 corrective waves etc.

Daily Chart

Ranbaxy started its correction journey way back in Nov 2010 and it looks that it has finally ended. Let us have a look at the entire corrective wave

Flat wave correction - Usually flat waves according to Elliott follow 3-3-5 pattern i.e. a 3 down wave called Wave A, followed by 3 wave up-move called Wave B followed by a final 5 down-wave move called Wave C. All of these are labelled below in the chart for your view

Wave A, B & C chart

Wave B retraced Wave A by 78.6% and followed a triangle pattern to complete wave B

Look at the below chart to see how 123.6% level has closely held as support for wave C

Below chart gives one more view of the support level by looking at a much larger cycle panning out for last couple of years. The 123.6% level for Wave C corresponds to 250 levels of support and likewise in the below chart there is support at 78.6% around the 250 level mark. Combining these two approaches one can take a safe bet that probably Ranbaxy has bottomed out close to 250 levels

Weekly Chart

Once we have determined the Elliott wave cycle we are in, then we need to complement it with other tools to ascertain the accuracy of the reading. Please do not do the other way. If you really want to be successful in riding the flow of the market then go by understanding the wave folding and unfolding followed by other technical indicators which better suit your understanding

One such tool that I keep following is fibonacci time zone, it is derived out of the fibonacci numbers 0,1,1,2,3,5,8,13,21,34,55 and 89. Usually what I have observed in the weekly chart reversals majorly happen at 89 (fibonacci number). A stock that falls gradually starts moving up when it nears the fibonacci series levels and likwise a stock which has gradually started to move up will start to move down when moving closer to the fibonacci series. This is one tool which can also give you an approximate time of when we can see the stock reaching those levels

Coming back to the chart, we clearly see at the fibonacci series level 89 Ranbaxy has reversed in a bigger manner. Thanks to those results that were out and the stock flew up by more than 25%

Monthly Chart

Yet another wonderful tool is the fibonacci circle, which shows the support and resistance levels. The chart below shows that

What's next

This is the next million dollar question that all of you will have in mind as you reach through this post, connecting the highs and lows of previous corrective wave we see that 61.8% to 70.7% stands at 480 to 510 levels. We should be geared up to buy positions in Ranbaxy with a 6 month to 1 year view and be long in it

Note : Have you read "Ramki's - five waves to financial freedom" if not, buy it now?. Making money cannot happen until you know how to make it and the tool to sharpen the saw is Elliott Wave Analysis

You can reach me at researchstockmarket@gmail.com, I would be glad to help you with your portfolio of stocks either in terms of ones you should negate or keep adding