Short Candidate: Bears Watching this ‘Bearish Engulfing’ at the All-Time High!

  • Stock Market Analysis
  • Editors Pick

There are many stocks that have plunged to lower levels and now are making a comeback as broader market sentiments improve. However, some stocks are becoming good counters for profit booking by investors. 

Cipla (NS: CIPL ) is one stock from the pharma space that is showing relative underperformance in today’s session. The company has a market capitalization of INR 92,373 crores and offers its products for therapeutic areas, including cardiovascular, children's health, dermatology & cosmetology, diabetes, HIV/AIDS, infectious diseases & critical care, malaria etc. 

Image Description: Daily chart of Cipla with volume bars at the bottom

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The share price of Cipla had rallied quite well in the last few days despite weakness in the broader markets. But today, as most of the sectoral indices are trading in the green zone, the pharma space is seeing profit booking, all thanks to a relative outperformance in the last few sessions. Owing to the current weakness, Cipla shares fell 1.54% to INR 1,127 by 1:28 PM IST and formed a strong Bearish engulfing candlestick pattern on the daily chart. 

This is a reversal signal and is one of the early warnings for bulls that bears are gradually gaining strength and are gearing up to charge. The price action of this two-candlestick pattern is quite simple. The first candle is a green one and the second candle is a red one which has a real body larger than the previous candle and completely overlaps the previous real body. The larger the second candle, the more the strength bears project. Although a good volume on such reversal days is always welcomed, the volume in the case of Cipla is almost at par with not much excitement.

As the session is still going on, investors should wait for the closing before making any investment decision. If the current candle closes below INR 1,138.85 which is the opening price of the preceding day then the pattern would be confirmed. A penetration of today’s low on Friday and more preferably a lower closing as well would further increase the confidence in the reversal. 

Interestingly, on the weekly chart, the stock is forming a different reversal pattern, called a shooting star. It is an inverse of a hanging man pattern and forms at the top of a rally. It also depicts a reversal and coincidently, two different reversal patterns have formed on two different time frames in the Cipla chart therefore bulls from here need to be cautious.

Disclaimer: This article shall not be deemed as a recommendation to buy/sell/hold any security.

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  • Anil Bhargava @Anil Bhargava
    thank you
    Like 0
    • Aayush Khanna/ @Aayush Khanna/
      You're welcome Anil.
      Like 0
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  • Ashok Khade @Ashok Khade
    Great 👍
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