Last Updated on Jun 28, 2022 by Anjali Chourasiya
This article is authored by Kunal Rambhia, a fund manager at The Streets, a private fund. He has been in the equity market since 2010, in various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW and is a visiting faculty in multiple colleges.
Markets have shown good strength in the past couple of sessions. The auto segment came out as a clear outperformer. Herein I discuss my technical observations on Eicher Motors, which seems to be gaining good strength in the 2-wheelers segment. Almost all charts are of higher timeframes, and the view shared is more positional.
Table of Contents
Monthly: Cycles
I have shared the entire chart of Eicher Motors from 2002 till now is shared here. There has been a typical cycle period seen on the monthly chart, where Eicher follows approximately 51 bars cycle to change the phase. The longest cycle between 2010 to 2017 also turned out to be double than 51 bars. The most recent cycle also seems to be coming to an end, and a new positional rally may begin anytime soon now.
Weekly: Price Action
Since 2017, the price is clearly respecting a resistance line. It hit the line almost five times and fell. The most recent behaviour is showing support for another trendline since 2021. This entire formation looks more like a cup and a handle formation on the chart. As the time cycle coincides with the pattern formation, there is a bright possibility of a breakout in the time to come. As the pattern duration is 5 yrs, a sizeable rally can be expected on the breakout.
Weekly: RSI
Since 2021, after making RSI high into the overbought zone, RSI underwent consolidation and consolidated near 50. Off lately, it started making higher highs and pointing upward. This shows the clear strength getting accumulated in the counter.
Weekly: MACD
MACD is a lagging indicator. Multiple signals are generated on the same. First is the crossover, which has been seen more recently. Second is the breakout of a zero line, which is also seen with the last candle rally. A downtrend breakout of MACD is witnessed on the counter, confirming the likely emergence of a new trend.
Weekly: Ichimoku
Ichimoku is a lagging indicator. Tenkan – Kijun crossover just got confirmed. Price candle crossed cloud on the higher side. Future cloud is about to turn bullish with crossover, and Chikou cloud is also above the price 26 candle back. Almost all signals confirm the emergence of a new rally.
Weekly: Bollinger Band
Bollinger Band is two standard deviations from the average line of 20 periods. As price remained in the sideways consolidation since 2021, the bands are almost squeezed. The price candle closed above the Bollinger Band, which may trigger the new bullish rally from hereon.
Weekly: Ratio chart: Eicher Motors vs Nifty Auto Index
Since 2016, the ratio chart has remained more or less in sideways consolidation. Sideways consolidation of the ratio chart means that the counter’s performance remained in line with Nifty Auto’s performance. Presently, the ratio chart has taken support of the support line and showing bounce. For the mid-period, the outperformance of the counter is likely till the ratio chart hits the resistance line. As it’s a weekly chart, the outperformance may also continue for a couple of months.
Weekly: Ratio chart: Eicher Motors vs Hero Motors and Bajaj Auto
Here I share the ratio chart of Eicher Motors with Bajaj Auto and Hero Motors. The left side chart is the ratio chart of Eicher Motors with Bajaj Auto. Pointing upward, the ratio chart is looking positive, which highlights a likely outperformance of Eicher Motors over Bajaj Auto.
The right side chart is the ratio chart of Eicher Motors with Hero Motors. Clearly upward sloping chart since low of 2019-2020 confirms clear outperformance of Eicher Motors over Hero Motors. The trend is intact so far and is likely to continue. Eicher Motors holds its victory trophy in hand 🙂
Putting it all together
Eicher Motor’s monthly cycle of approximately 51 bars, the cup and handle formation on the weekly chart, stronger RSI (pointing upward above 50), MACD Crossover of zero line, Ichimoku 4 confirmations, and squeezing Bollinger Band confirm likely outperformance of Eicher motors in the time to come. The price plotting outside band and ratio chart with Nifty Auto, Bajaj Auto, and Hero Motors also confirm the same. Kindly note that most of the charts are higher timeframe charts, so the positional approach has to be kept in mind.
Statutory disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open in the counter. Prefer to take the advice of your financial advisor before initiating any position.
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