Investors must move into 2-wheeler stocks during correction

Mayur Shah

The bulls are in no mood to relent as stocks in the Tech sector continue to zoom while a few stocks in other sectors have been pausing and are in an intermediate correction. These corrections are not quite large and we could again see the start of a fresh uptrend in many other sectors once the stocks in the tech sector go into an intermediate correction. Within the indices, we are also seeing an excellent rotation of stocks.

The stocks that zoom ahead for a few days, rest for some days, and in this period, the stocks, which have already rested, start moving higher. Once the earlier stocks, which have rested, start moving ahead, the other stocks rest.

This has resulted in a strong rise since September 21 and we have seen in the past few weeks that scores of sectors have bottomed out and have gone into a major uptrend.

This is an excellent time for investors, as well as traders, as they ride the strong bull run and make hay.

The important thing for an investor, or a trader is to find opportunities in the market with superior reward to risk ratio. These may occur frequently, several times in a given stock, or not at all. Our job is to find and exploit these opportunities when they appear.

What we are seeing in many stocks is that some reversal patterns do not turn out to be reversal patterns at all, they simply mark the end of the prior trend and a transition to a sideways market, rather than the beginning of a new trend in the opposite direction. Often patterns are small parts of larger patterns that can be seen only on a longer scale, by shifting from daily to weekly charts and from weekly to the monthly view.

Securities rarely transition from bullish phases to bearish phases, or vice-versa in an abrupt manner. These transitions usually involve a sequence of price action that typically includes one or more tests of support, or resistance.

In the past few months, I have taken a look at many strong sectors which were bottoming out and today I will take a technical tour of the two-wheeler automobile sector. Many stocks in this sector are already in a major uptrend and a few of these are correcting themselves and will give investors an opportunity to add to the long positions that they are holding.

Even investors who are left out can keep a watch on these stocks and can start picking up stocks in this correction. As the major trend of the sector is up, higher levels in this sector are expected soon.

Bajaj Auto
Bajaj auto was already recommended a few months back when the stock broke out of the sideways triangle formation and went into a fresh intermediate uptrend.

After attaining a high of 400, the stock has dropped into a fresh intermediate downtrend and this intermediate downtrend will give investors an opportunity to add long positions to the stock.
The major trend of the stock is already up and the 30 WMA for the stock is now moving higher. The current intermediate downtrend is the first correction of the stock after bottoming out and investors must get into the stock in this correction during the pull-back by the stock towards its 30 WMA.

As the 30 WMA for the stock is far away, it means that the current intermediate downtrend may bottom out well above the 30 WMA, and hence, traders must keep a close watch at the stock and get into it.
The stock will soon exhibit higher levels.

TVS Suzuki
TVS Suzuki broke out of the bottoming formation with a rise in volume and went into a major uptrend. The stock is well above its rising 30 WMA and its earlier intermediate bottoms, and hence, the major trend of the stock is up. The relative strength line for the stock has moved past its zero line, indicating that the stock is outperforming the indices. Investors must hold on to the long positions in the stock while more long positions in the stock must be added after the next intermediate correction.

The intermediate trend of the stock is still up and investors will have to wait for some more time before the stock actually goes into an intermediate downtrend. Keep a close watch at the stock and investors holding the stock must continue to do so.Trading volumes are less, and hence, investors must pick small quantities.

LML
LML is also in a major uptrend like the other stocks in this sector, as the stock moved past its earlier intermediate top and its 30 WMA in the current intermediate rise. The stock is still in an intermediate uptrend and is currently moving sideways. It could drop into an intermediate downtrend on a close below 19.

The breakout by the stock was not accompanied by a rise in volume and this is not a very bullish sign. Thus, investors must look at other stocks in this sector which are also in a major uptrend and are more stronger.The relative strength line has moved above its zero line and could fall back if the stock goes into an intermediate downtrend. Investors must always pick up the strongest stocks in the strong sector, and hence, must avoid this stock, even though it is in a major uptrend.

Hero Honda
Hero Honda is the strongest of stocks in the two-wheeler automobile sector. The stock was one of the first to go into a major uptrend and well ahead of majority of the other stocks. The relative strength line is well above its zero line, but is currently correcting and moving down as the intermediate trend of the stock is down.

The stock is pulling back towards its 30 WMA and this will give investors a good opportunity to get into the stock in the current intermediate downtrend. Those investors already holding long positions in the stock must add to the long positions in the current intermediate downtrend. Stay invested in the stock and do not book premature profits. Higher levels in the stock will soon be seen.