Last Updated on Feb 3, 2022 by Aradhana Gotur
This article is authored by Kunal Rambhia, a fund manager at The Streets. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.
EV is the new talk of the town. We have been hearing a lot about this new theme of investment lately. But Amara Raja Batteries has been underperforming for quite a long time. Let’s take a deep dive to understand formations and see whether it’s worth keeping on the radar.
Kindly note that most of the technical charts are higher timeframe charts. Consider this as an investment theme.
Monthly Log Chart: Simple Trendline
During earlier years of listing, this battery manufacturing stock remained sideways and then it entered a trending phase. After multiple declines in the last 17-18 yrs, a reliable trendline has come up. The stock has just reached the same support zone after the recent correction. Prices may take support at the same zone.
Monthly Log Chart with Fibonacci Retracement
After the massive advance of prices from Rs. 17 (after all adjustments) to approx. Rs. 1,100 in 6 yrs, the stock witnessed profit booking. Price corrected from the highs to 350 zone (almost 70% from the peak). The retracement is been 61.8% of the last advance. Prices are hovering between 50% to 61.8% zone for long. Such consolidation after massive decline is hinting towards a ‘potential bottom zone’ in place.
Monthly Log Chart: Time Cycle
Price advanced from the lows of March 2009 to the highs of August 2015. We could see 77 monthly bars in between lows and highs. Since August 2015, we saw a correction. But on the log scale, it clearly shows sideways correction. The ongoing monthly candle is just turning up the 77th candle. There seems to be a brighter possibility of time correction coming to an end and a new rally ‘may’ emerge.
Weekly chart with Fibonacci Retracement
After multiple declines in the past 6 yrs, the most recent advance and decline brought prices back to 61.8% of the most recent advance. Prices are consolidating near 61.8% retracement for 9 weeks. The last candle looks like a doji (or even hammer), just like 5 candles behind. On the daily chart, this looks like a possible double bottom formation, which highlights the possibility of limited downside.
Price seems contracting in action. The first decline was of 30%, followed by approx. 20% and then 11%. Contraction is forming a falling-wedge like formation. The most recent formation looks like a curve formation with multiple equal bottoms, confirming limited downside (as supported by other formations too).
Daily chart with Ichimoku
Price consolidation has brought Tenkan & Kijun Sen very closer with almost crossover. Future cloud is turning thin with Span A turning a bit higher. The most recent attempt was done by the price to surpass cloud, but that turned into a failure. On price-cloud crossover alongside Span A and Span B Crossover, this lagging indicator of technical analysis will give its thumbs up.
Daily chart with RSI
Lastly, the daily chart is showing curve formation (as discussed earlier) with higher RSI bottoms, confirming positive RSI divergence. This again highlights the positive reversal on cards.
Putting it all together
After studying monthly chart cycles and retracements, weekly trends with the most recent decline, daily chart formations, Ichimoku and RSI indicators, we can conclude the limited downside and potential turnaround may be around the corner.
Statutory Disclosure: Kindly note that this update is only for educational purpose. It is safe to assume my personal position, my fund’s position, my clients’ position and my relatives’ position may be open in the counter. Prefer to take the advice of your financial advisor before initiating any position.