Is Dr Reddys Laboratories set for pullback?

The stock of Dr Reddy’s Laboratories Limited marked a high of Rs 5,614.60 as of July 07, 2021, and thereafter, witnessed a correction. The stock has lost over 18 per cent in just 32 trading sessions.    

However, on Tuesday, the stock had formed a hammer candlestick pattern. The hammer candlestick pattern is considered to be a bullish reversal pattern, which usually occurs at the bottom of a downtrend. The long lower shadow of the candle clearly indicates the emergency of buying interest on the lower levels. Further, the reversal was supported by a relatively higher volume.   

On Tuesday, the stock closed near the weekly pivot. Currently, it is trading below its crucial short and long-term moving averages.    

The momentum indicators and oscillators are also portraying a bullish picture. The leading indicator i.e. the 14-period daily RSI has given a positive crossover near the oversold region. The MACD histogram is suggesting a bullish momentum as it is trading above the zero line.   

Moreover, a positive divergence is clearly visible between the daily RSI, daily stochastic, and the stock price movement, which suggests a limited downside. Positive divergence occurs when the price is making a lower low, while the RSI forms a higher low.  

Going ahead, if the stock sustains above Tuesday’s session high of Rs 4,595.70 and trades convincingly above this level then, there is a high probability that Tuesday’s lowest point of Rs 4,445.70 would become a temporary bottom for the stock.