The Stock: Tata Motors
Tata Motors stock has seen a lot over last 24 months. The stock chart tells a fascinating story of ups and downs and how one can apply different concepts of Science of stock price action on the chart. The concepts covered just in one stock-
1. The Importance of Long-term Moving average
2. Mean Reversion
3. Double Bottom
4. Turnaround
5. Rangebound Breakout
6. How to Play Gaps
Trading Rule = When a stock breaks Long term (200-day moving average) average, then that stock enters in a downtrend and becomes sell on rally. Such stock becomes Avoid then.
Tata Motors stock broke down below Long-term moving average in March-April 2015.
Source: Chartalert.com
There is no fixed rule to use 200-day moving average. You have to find which long term moving average stock is holding and then build your own analysis around it. In the case of Tata Motors stock, it was not 200-day moving average but 180-day moving average that was working.
Trading Rule: When a blue-chip stock gets too extended on downside, then it can make a sharp Mean reversion rally. It’s not a tradeable rally but it does weaken the downtrend
Source: Chartalert.com
Tata Motors stock managed a sharp Mean reversion rally from lows of 280 all the way to 180-day moving average. Such rallies put a short-term bottom in place and weaken the downtrend.
Trading Rule: Double Dip in a Bluechip stock with Nifty Bottom = Exciting Oppty
Source: Chartalert.com
Nifty touched 200 week moving average on Feb 12 2016. Tata Motors stock on same day formed double bottom at 280. The stock rallied the following day from 280 and then ran all the way to 426 – previous high. It was a stunning recovery in which Tata Motors stock also turned around above 180-day moving average.
Trading Rule = Post turnaround, the stock is generally buy on declines.
Tata Motors stock developed a trading range between 280 and 426 with turnaround above 180 day moving average. The stock was now buy on declines
Trading Rule = When a stock Gap-ups and breaks out above the trading range in a continuation rally, then the level to watch is Gap-support on declines for fresh entry.
Tata Motors stock managed a gap-up breakout above 426 after taking support at 50 day moving average.
Source: Chartalert.com
The Gap filling levels since then has been great buying opportunity so far.
Source: Chartalert.com
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers