Four-wheeler Auto Stocks: Set For A Take-off

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: The strong intermediate downtrend, which is three weeks old, has resulted in the indices moving very close to their respective earlier intermediate bottoms and unless an intermediate bottom is established immediately, the indices may drop below their earlier intermediate bottoms and the major trend of the indices could turn down. Friday’s strong reversal requires more follow-up in the coming week to avert this.

The Sensex has an earlier intermediate bottom at 4599 and the Nifty has it at 1435. The market breadth has been week in the past three weeks and most of the sectors were affected in the intermediate correction.

The only sector, which moved higher in the intermediate correction, was the textile sector. If the indices bottom out soon, there are a number of sectors, which look interesting. Some of these are automobile sector, the cement and the tech sector.

Many stocks have been exhibiting a short-term bullish relative strength indicating that their rate of decline in the past three weeks was lower than the rate of decline by the Sensex.

This makes these stocks right candidates for buying in the next intermediate rise. If the indices bottom out above their earlier intermediate bottoms, investors and traders must look at such stocks which are in a major uptrend and which have been exhibiting bullish relative strength in the long term as well as in the short term.

One such sector is the automobile sector. Select stocks, in both the two-wheeler as well as four-wheeler, fulfil these requirements and are right candidates. Today, I will take a look at the four-wheeler automobile sector.

Tata Motors

Tata Motors is one of the stocks in the four-wheeler automobile sector that has outperformed the indices and was recommended when the stock broke out of the basing pattern. The stock was consolidating sideways between 350 and 395 in the past four weeks and a close above this sideways zone will result in higher levels for the stock.

Both the short-term relative strength as well as the long-term relative strength line for the stock looks strong and investors can add to their long positions along with position traders. Investors must keep a stop below the recent bottom formed in the past four weeks i.e. at 350 and position traders can pick up long positions with a stop at Friday’s low of 367.

Mahindra & Mahindra