Last Updated on Dec 6, 2022 by Anjali Chourasiya

Markets have been choppy recently but seem to be holding up the support zone well. Sector-specific moves have started, and counters have picked up well, showing outperformance & leading behaviour. Among the auto sector, Tata Motors now seems to be joining the race. Herein I share my technical view on the counter. 

Weekly: price action

Most of the charts shared are in log scale, including this one. The main reason for the same is too much movement in the price since the bottom of 2020. The trendline was decently respected in the entire rally, and the price has been in a sideways consolidation since the beginning of 2022. The consolidation started after hitting the high near resistance (highlighted with the top resistance line. So far, the TREND remains intact, and a consolidation breakout can lead to a new positive rally. 

Weekly: Fibonacci Ratio

Tata Motors is decently respecting Fibonacci retracement levels. The first retracement was somewhere in September 2021 to the extent of 23.6%. The most recent correction halted decently near 61.8%. Almost 3 bottoms were made near the 61.8% retracement zone, which is also coinciding with the previous high (breakout) zone. The resilience of the counter to go below that zone makes it a more attractive bet from a positional perspective with a favourable risk-reward ratio. 

Weekly: RSI

As the price remains in a perfect bullish trend by making higher tops and higher bottoms, RSI is consolidating and making lower bottoms. This is a perfect sign of “Hidden bullish divergence” and clearly highlights the inherent strength in the counter. 

Weekly: MACD

MACD is a lagging indicator and confirms the trend once it is set. During the entire bullish trend, MACD remained decisively above the zero line, confirming the trend. Due to the recent consolidation in price, MACD retraced near zero line, went below the same for some time and now again showing bullish crossover. As the price crosses the intermediate resistance line (highlighted in white colour), MACD will again decisively move above the zero line (post crossover) and confirm the newly set trend. As market participants, we need to actively watch out for this set-up to create a position. 

Weekly: Ichimoku

Ichimoku, like MACD, is also a lagging indicator. The best part of this indicator is that it shows the past, the present, and the future in the same indicator. For the purpose of clarity, I have placed only Kumo Cloud (using Sanko Span A & B). When the trend was set to a bullish one, the price decisively crossed Kumo Clouds on the upside and remained above that. It retraced near the trendline support, which coincided with cloud support during August-September 2021 and again bounced decisively. During the recent sideways consolidation, again, the difference between price and cloud narrowed, and price opted to take support of the cloud (which coincided with trendline support) and bounced. This seems the perfect situation, offering the buying opportunity in the massive uptrend. 

Weekly: Bollinger Bands

I consider the Bollinger Band for the momentum trade. Multiple ways are used to look at Bollinger Bands, of which one is “squeezing bands”. As per the strategy, when the price goes into sideways consolidation, 3 lines of Bollinger bands (one being moving average and 2 lines being standard deviation) will squeeze near price, making narrow bands. The trigger is valid when the candle closes out of bands (upside closing for bullish confirmation and downside closing for bearish confirmation). Presently, bands have squeezed enough, and confirmation is due anytime soon: )

Daily: Price Action, RSI & MACD

Coming to the lower timeframe (daily), the price is holding a support trendline highlighted in white colour. Compared to the previous breakout zone, the price made almost 3 bottoms in the same zone and bounced (highlighted with a blue trendline). Almost 3 tops are made in the same zone (highlighted with a yellow trendline). The price is well respecting the support trendline and the resistance line as well. 

  • RSI is clearly inching higher and trending above 50, showing gathered strength in the counter. 
  • MACD is well above the zero line (after crossing the zero line from the lower side) and inching higher. 
  • All indicators are clearly supporting the bullish trend, and just price action is awaited for the best trade to initiate. 

Daily: Ichimoku

Ichimoku gives multiple confirmations when looked at in detail. Tenkan Sen and Kijun Sen crossover is in place, which confirms the short-term bullish trend. The future cloud is bullish and widening, which shows the possibility of trend continuation. Chikou span is yet to cross-cloud on the upside, which seems alongside the price breakout confirmation. 

Almost all observations on Ichimoku confirm the likely emergence of a new trend. 

Ratio Chart: Tata motors v/s Maruti

Herein I plot the ratio chart of Tata Motors and Maruti. The ratio chart is clearly within curve formation. Presently, the plotting rate is onto support (inflexion point) highlighted with yellow and blue trendline support. 

RSI is downward sloping, which confirms “hidden bullish divergence”. All the observations on the said chart suggest keeping a close watch on the Tata motors breakout zones to earn Alpha in the segment. 

Putting it all together

Weekly trendline support and consolidation, Fibonacci support of 61.8% & retesting of breakout zone, hidden bullish divergence on RSI, MACD Crossover (and likely crossover above zero line), Ichimoku cloud support alongside trendline support, squeezing Bollinger Bands and multiple observations on daily charts (ranging from trendline support to trending RSI to decisive MACD and almost all Ichimoku confirmations) are making Tata motors one of the best bullish trades. The ratio chart supports a good accumulation zone alongside good days ahead for the counter. 

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 on the counter. Prefer to take the advice of your financial advisor before initiating any position.  

Kunal Rambhia
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