The price action in the Tata Motors stock has been volatile during the past few weeks. From the daily chart featured below, it is apparent that the stock cracked sharply on Friday and has recovered quickly today. How do we sort this out technically. Pay attention to the simple blue trendline and the prior gap highlighted by the red parallel lines.
Today’s recovery is not surprising and was anticipated given the strong confluence of support at the Rs.275-285 range. Now that the stock is up 4.5% today there is little point in buying it now. Those who feel itchy to buy may do so provided the stop loss at Rs.260 is affordable.
A better strategy would be wait for a minor correction to the blue upsloping trendline. A fall to Rs.280-283 range would be an ideal entry opportunity for a trip to the upper blue parallel line at Rs.330+
The idea behind this post is to highlight how simple technical analysis concepts such as gaps and trendlines are good enough to spot trading ideas and potential area of support / resistance.
(Disclaimer: The view mentioned in this post is based on technical analysis of stock price movement and not on company’s fundamentals. We may have shared this idea with our clients earlier. Neither Wealthindia Financial Services nor the author has any exposure in the stock discussed here.)