Last Updated on Dec 27, 2022 by Gayathri Ravi
As we have discussed in the previous articles, markets seem overheated, and the correction was due. Here we saw a sizeable correction in the Indian markets. Stocks got butchered significantly, and indices also came down sharply.
Coming to stocks, there are many counters which are still under uptrend formation, so I feel comfortable holding them and considering them for buying on the decline. But a few counters are extremely overheated and still have not shown any correction. We can consider them for short-term shorting. Herein I share one such counter – TVS Motors. Let’s go through all the observations and understand the structure.
Table of Contents
Monthly: Time cycle
We can see that the counter has been following approximately 33 bars cycle since 2006. A couple of short-term cycles are also seen, which are of 22 months. But most of the cycles are of 33 bars. The most recent 31-bar monthly cycle is over just a month before. The whole previous cycle was an uptrend cycle, and the next phase can be either sideways or a downtrend cycle.
Weekly: Price action
On the weekly timeframe, we saw the decisive breakout of the yellow trend line on the chart near the 840 zones, and the price has gone up significantly since then. The white trend lines are forming a somewhat rising wedge formation. The support zone for the counter based on the white trend line is near the 950 zones. If the price breaks that zone on the lower side, then we can expect a decline till the yellow trend line and another white trend line which is near the 840 zones. Even at the 840 zones, the counter will remain in an uptrend, and our short to mid-term bearish approach will get justified.
Weekly: RSI and Bollinger Bands
Relative Strength Indicator (RSI) is a momentum indicator, and Bollinger Band is a trending indicator. Due to recent sideways momentum, Bollinger Band is squeezed. The price broke the midline of the Bollinger Bands on the lower side and confirmed a short-term downtrend. If we look at RSI at the same time, then we can see it came out of the overbought zone and is still in decline mode. The likely target can be the lower band of Bollinger, which coincides with the white line.
Below the blue band, the price can enter a mid-term downtrend and may hit lower zones.
Weekly: MACD
Moving Average Convergence Divergence (MACD) is a lagging indicator. In its entire history, the MACD has not been to such high levels. From extreme highs, the first crossover on MACD is seen. Certainly not sufficient to consider correction, but mid-term weakness can’t be ruled out on the counter, especially when other observations support the same.
Weekly: Supertrend
Supertrend is a lagging indicator and generally confirms the trend of the counter. We can see that in spite of massive volatility, the super trend has consistently offered good support/resistance to the counter. Recently price deviated far away from the supertrend, and now the gap is narrowing down. The supertrend support line is just in the same place as the trend line support zone. If the support is breached, then we can expect a mid-term downtrend on the counter, which is supported by a supertrend view too.
Daily: Price action and RSI
On the daily chart, the price remained in a sideways consolidation for a longer time. RSI started declining even before the consolidation, indicating bearish divergence, and the price is now forming a head-and-shoulder bearish formation. Any close below neckline support can trigger a sizeable decline and confirm short-term top in place.
Also, an interesting observation is that there were 2 past instances where volumes shot up near the high of the trend, and the price started correction right after that. Similarly, sized volume is seen right now, which supports the possibility of short to mid-term decline, coinciding with patterns and other observations.
Sectoral players comparison
Let’s have a look at the three players’ performances. Bajaj Auto remained more or less sideways during 2021-2022. Eicher Motors remained sideways earlier and then picked up. But it’s in correction mode in recent times. But if we look at TVS Motors, it was in the bullish mode for the whole of 2022. The correction in the same has just started and seems to be a bright possibility of correction momentum picking up, considering peer performance and also mean reversion.
Putting it all together
Considering monthly cycles of 33 periods, price action on the weekly chart with the possibility of retesting of breakout zone, RSI and Bollinger Band crossover, and MACD crossover from extreme highs, it seems that there can be selling pressure on the counter going forward for short to mid-term perspective. The supertrend coincides with the support trend line, daily chart head and shoulder formation with weakening RSI and sectoral players, suggesting the same.
If one is a positional trader, one can think of buying near-mentioned support areas, but the counter can certainly be considered for shorting from a short-term to a mid-term perspective.
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.
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