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DIVIS LAB: Formation of Multiple Bullish reversal Pattern

The U.S. FDA is inspecting the Unit II of Divi’s Laboratories Ltd.’s Visakhapatnam facility, people with knowledge of the matter said. The inspection started on Monday and is expected to conclude within a week, a company official aware of the development said on the condition of anonymity. A vendor who provides raw materials to Divi’s Laboratories also confirmed that the Unit II is currently being inspected.

The U.S. Food and Drug Administration had issued an import alert in March and a warning letter in May for Unit II. Plants on the FDA’s import alert list cannot export drugs to the U.S. Since European regulators have cleared the plant after inspection, the Divi’s Laboratories management is hopeful that the inspection of Unit II will conclude smoothly.

Do we see a clean chit from the observation..??

Looking towards the price patterns in the recent past, it seems that Divi’s Lab is expecting some positive news flow in near future.

Multiple bullish patterns on the stretch had led stock price to recover quite well. The double bottom pattern within the right shoulder was witnessed with good volumes leading price to test the previous peak and further recovery was visible. The formation of Inverse Head & Shoulder pattern has witnessed breakout that led price to head higher and sustain above the previous peak levels. Ichimoku indicator (not shown) on daily time-frame has also signaled the bullish signal breaking above the Cloud zone and Flat cloud area in recent past.

DIVISLAB

Inverse Head & Shoulder is also visible inside Head and right shoulder while Complex Inverse Head & Shoulder can also be seen if seen on intraday charts on Left shoulder. Intermediate gap area has been broken and minimum retracement level of 23.6% of the overall downfall is surpassed. This clearly states that price movement is indicative of bullishness in continuation. Breakout of the Inverse Head & Shoulder suggests stock price to continue further towards 930 levels that confluence of previous couple of highs and lows making it perfect Demand / Supply zone.

Option data suggest OI addition towards ATM and OTM calls. 800 call is currently trading at around 34 while 880CE & 900CE at 9 and 6.50 respectively. Risk being very low with expectations quite high, Option traders can build their position by long 880CE or 900CE. Stock price heading towards 930 levels, the respective calls will go ITM and will attract surge of more than 125 points. Risk / Reward based on this levels, looks attractive with ratio of around 1:15.

One should keep track of the news-flow and reaction on the stock prices.

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