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On This Day - 17 MAY 2021
Auto Stocks Are Looking Bullish

Brijesh Bhatia, Research analyst

In a truncated week, the bulls failed to surpass the key level of 15,000 and bears took it back to the 14,600 levels.

Metals stocks witnessed profit bookings on the back of retracements in metals prices.

PSU Banks led the week with nearly 4.5% gain. We highlighted PSU Banks is a buy vs Private Banks.

Watch here What to Buy? PSU Banks or Private Banks.

The Week Ahead

The bulls took it very close but failed to cross the winning boundary last week.

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During the start of the week, index approached the key level of 15,000 (made high of 14,966) but failed to capitalise the bullish momentum.

The bulls lost is bears win and they take back index to 14,600 levels.

 

The index traded in the range of 14,200-15,000 in the form of downwards sloping channel.

The last week's high was at the confluence of channel and horizontal trendline which will act as crucial resistance in coming weeks.

Derivatives traders can look for strangle in Nifty till the above range is broken out.

We expect index to prolong in the range and traders should focus on stock specific opportunities.

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Auto Index - Ignited to hit the Highways

Auto index had underperformed against Nifty since the start of the February 2021 as Auto index has corrected 15% against the Nifty's 8% for the same period.

The tide might turn for the auto index as we witnessed the bullish structure on the ratio chart of Auto Index vs Nifty.

Auto Index / Nifty - Ratio Chart

 

The above chart is the ratio chart of Auto Index vs Nifty where the price of Auto Index is divided by Nifty. The ratio going higher means Auto Index is outperforming and vice versa.

Looking at the chart, the bullish bat harmonic structure is visible on chart indicating an end of underperformance for Auto Index.

Importantly, this bullish structure is formed at the support zone strengthening our conviction.

Let's analyse the auto index chart.

Weekly Chart

 

The V-shaped rally from the lows of March 2020 to the highs in February 2021 signals the strong bullish trend.

The primary trend is bullish and the dips in secondary or intermediate trend are an opportunity to accumulate.

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In the chart above, the index has retested the previous high and resumes its bullish momentum.

The recent test of breakout and turn in the tide are a sign of auto ignited to hit the highways.

Daily Chart

 

With the weekly scale highlighting the primary trend is bullish, we analysed the secondary trend which is daily chart and found an excellent trading opportunity.

The bullish butterfly harmonic pattern on daily scale is in sync with weekly chart of Auto Index and the ratio chart of Auto Index vs Nifty.

Harmonic patterns are reversal in nature and are calculated based on Fibonacci retracements and projections.

Index has reversed from the bullish harmonic and forming higher high - higher low bullish structure as per Dow Theory confirming the reversal.

From the short-term perspective, the auto index and auto stocks offer an excellent money-making opportunity for the target of 11,000-11,500 from the current price of 9,800.

Conclusion

Nifty continues to trade in a range of 14,200-15,000 zone and derivatives trades should look for a strangle strategy.

Traders should focus on stock specific momentum with buzzing sectors.

Auto Index is ignited to hit the highways as indicated by bullish weekly and daily chart.

The ratio chart above too highlights an end to the underperformance of Auto Index over Nifty.

Warm regards,

Brijesh Bhatia
Brijesh Bhatia
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)

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