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Wednesday, December 1, 2010

Stock Chart Pattern - Tata Motors (An Update)

In my previous post about the stock chart pattern of Tata Motors 9 months back, I had questioned the buy calls given by several brokerages. Not because the fundamentals had worsened – in fact, they had improved due to the contributions to the top line and bottom line from the Jaguar-Land Rover acquisition.

The caution advised was purely due to technical reasons. The stock was very near a long-term resistance level of 813, at its closing level of 807.50 on Mar 3 ‘10 (marked by the blue arrow on the chart below). I had made the following observations:

‘The more likely outcome could be a period of sideways consolidation between 842 and 645… This is not a time to buy, but to book profits. Stalwart stocks should be bought when the markets hammer them down.’

There are many detractors of technical analysis. The more vociferous ones usually know next to nothing about the subject. I keep pointing out that technical analysis is an art and not a science. Therefore, previously observed price patterns don’t always have predicting capabilities. But like any form of ‘art’, it is a skill that improves with practice. When combined with proper fundamental analysis, investment returns can improve substantially.

There is no better example of it than the 1 year bar chart pattern of Tata Motors:

TataMotors_Dec0110

If some one had missed (or ignored) my previous post and had bought the stock at the Mar 3 ‘10 closing price of 807.50, based on brokerage recommendations, he would be sitting on very decent gains of about 60% in 9 months. But if he had waited and bought near the May ‘10 low 673.70, his gains at today’s close of 1288.15 would be more than 90% in less than 6 months.

The stock continued in a sideways consolidation with a slight upward bias, mirroring the Sensex chart, till a break out on high volumes in Aug ‘10. A smart rally for the next three months took the stock to an all-time high of 1350 on Nov 10 ‘10. But it turned out to be a ‘reversal day’ and the stock dropped down sharply to the rising 20 day EMA.

After a short period of sideways consolidation around the 20 day EMA, the stock fell to the rising 50 day EMA on Nov 26 ‘10 but managed to close above it. This week, it has bounced up strongly to move above the 20 day EMA, and all the four EMAs are rising. The bull market in the stock is alive and kicking, and a test of the recent all-time high is imminent.

Note that all four technical indicators made lower tops when the stock touched the all-time high. The negative divergences were a warning about an impending correction. The indicators are beginning to turn bullish again. The MACD has turned up in positive territory and about to cross above its falling signal line. The ROC has jumped back into the positive zone and has moved above its 10 day MA. The RSI stopped short of its oversold zone and turned up towards its 50% level. The slow stochastic bounced off its oversold zone and is at its 50% level.

Bottomline? The stock chart pattern of Tata Motors is in a bull market and is expected to test its all-time high soon. A pause can be expected before a new high is made. Existing holders should stay invested, or book partial profits at any sign of hesitation near 1350. This is not a time for fresh entry.

5 comments:

Gaurav said...

Sir - What is the upside that you envisage for Tata Motors in this fresh upmove? If I do sell my holdings, then where could I look at purchasing those back?
regards
Gaurav

Subhankar said...

If the stock crosses 1350, it can reach 1500. On the down side, there is good support at 1145.

The poor sales of Indica and Nano is a concern for the stock.

Gaurav said...

Sir,

Thank you! Any time frames for the 1500 call?

Subhankar said...

The way it sailed past 1350, it would be sooner than later! I'm not great at predicting short-term movements, specially in a stock that is touching all-time highs repeatedly.

If I had to put a date on it, it would probably be Mar 2011.

Subhankar said...

This article should make every Indian feel proud:

http://www.guardian.co.uk/business/2011/may/26/jaguar-land-rover-sees-sales-soar