Technical Analysis

Stock query: Tata Motors turns a corner

Yoganand D | Updated on April 12, 2020

The stock has found a crucial support and is forming a key base in the ₹64-70 band

Here are the answers to readers’ queries on the performance of their stock holdings.

I had bought Tata Motors at ₹208. Should I hold or exit? What is the long-term outlook for the stock?

Harish E

Tata Motors (₹74.6): Following a medium-term uptrend in late 2019, the stock of Tata Motors encountered a significant long-term resistance at ₹200 in mid-January this year. Subsequently, the stock resumed its long-term downtrend that has been in place since its 2016 high of ₹598 levels.

It has been in a medium-term downtrend since mid-January 2020. The short-term trend is also down. But the stock found support, recording a multi-year low at ₹63.6 in late March. Since then, it has been forming a key base in the band between ₹64 and ₹70.

There has been an increase in daily volume since early March.

Triggered by positive divergence in the daily relative strength index (RSI) and price rate of change indicator, the stock changed direction and gained 10 per cent, accompanied by above-average volume on Thursday.

The daily RSI is recovering from the oversold territory and is likely to enter the neutral region from the bearish zone. Besides, the daily price rate of change indicator is on the brink of entering the positive terrain, which will imply buying interest.

You can consider averaging the stock in declines with a long-term stop-loss at ₹50. The stock currently tests its 21-day moving average and faces a near-term resistance at ₹77.

A decisive break above this resistance will strengthen the progressing rally and take the stock higher to ₹90 and then to ₹98 in the ensuing weeks. An emphatic break above ₹98 will push the stock upwards to ₹110 and then to ₹125 over the medium term.

Only a strong rally beyond the crucial resistance level of ₹150 is needed to alter the medium-term downtrend and take the stock higher to ₹165 and ₹180 levels.

Conversely, if the stock slumps below the immediate base level of ₹64, it can find support at ₹60 and ₹50.

What is the short-term outlook of Can Fin Homes? I would like to buy it for a short-term horizon.


Can Fin Homes (₹284.8): The long-term uptrend in the stock of Can Fin Homes, which had been in place since it took a support between ₹220 and ₹230 in late 2018, came to a halt in mid-February 2020 when it registered a 52-week high at ₹519. The stock, thereafter, reversed direction, triggered by negative divergence in the daily indicators, and commenced its decline. It has almost retraced the entire prior uptrend, and found support at ₹253 recently. The stock tests a key immediate resistance at ₹300.

An emphatic break above this barrier will strengthen the near-term corrective rally and take the stock higher to ₹350. A further break above this barrier will alter the short-term downtrend and take the stock northwards to ₹377 and then to ₹400 over the medium term.

But failure to move beyond ₹300 will keep the stock moving sideways in the band between ₹250 and ₹300. A strong fall below ₹250 can pull the stock down to the vital long-term base in the ₹220-230 band. You can buy above ₹300 with a fixed stop-loss.

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Published on April 12, 2020

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