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BSE Health Care Index, the benchmark for tracking healthcare stocks, constitutes 18 stocks.
Dr Reddy's Laboratories has the maximum 17.3 per cent weight in the index followed by Sun Pharmaceutical Industries and Cipla with 15 per cent and 13.6 per cent weights respectively.
The BSE Health Care Index took support from its strong base around 1,140 in late 2002 and has been on a long-term uptrend since then. One leg of this uptrend encountered resistance at 4,600 in June 2008, after which it began declining.
After retracing almost 61.8 per cent Fibonacci retracement level of that up leg, the stock found support at 2,500 in March 2009.
In November 2009, the stock broke through its key long-term resistance at 4,600 levels and accelerated higher until it encountered resistance around 6,800 levels in November 2010.
Thereafter, the index marked an all-time high at 6,871 on January 2011 and then changed direction triggered by negative divergence in the weekly relative strength index and weekly moving average convergence divergence indicator. Moreover, the monthly RSI and MACD indicators had also reached overbought levels that had indicated the correction.
Since January, the index has been on a corrective downtrend. It has important long-term resistance in the band between 6,400 and 6,450. An empathic move above this band will indicate that the corrective decline has ended and the index can make an up-move to its next key resistance band between 6,750 and 6,800 in the long-term. Next long-term target for the index is 7,000.
On the other hand, immediate support for the Health Care Index is at 5,700 levels, strong close below this level can pull the index down to 5,200 and then to 4,600 in the long-term.
Medium-Term Trend
The index conclusively broke through its key support at 6,450 in late January. Only a strong move above this level will mitigate the ongoing down trend and lift the index higher to 6,750.
However, failure to do so will drag the index down to 5,700 and 5,800 support zone in the medium-term. Next medium-term support for BSE Health Care Index is at 5,500. Significant short-term support is pegged at 6,000 levels and resistance is at 6,300.
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