Bajaj Auto: Bumpy Ride Ahead ?

 Hello all,

Herein I share my observation on Bajaj Auto price action. The chart is of the daily timeframe. 

Price Action:

Since the bottom formed in March, the counter was clearly moving in a rising channel, satisfying the perfect condition of the uptrend by forming the higher tops and the higher bottoms. 

During July & August, the counter entered sideways movement and ended making double top formation (triple tops are also arguable, but interpretation would remain more or less the same). The neckline for the same is placed at 2910. On 2nd September, price closed decisively below the neckline zone, triggering a pattern sell call. 

After forming a double top, prices entered the lower top lower bottom formation, highlighting a clear trend reversal. During the downtrend phase, the eye-catching activities are seen on the volume's front. With every downtick, the volumes have peaked up, confirming the emergence of the strong downtrend. 

Fibonacci Retracement:

The reverse retracement is applied from the top to bottom. A wonderful thing to notice is that prices formed a double top, right in the vicinity of 88.6% retracement, and reversed decisively. The retracement was deep enough, but the reversal seems decisively sharper. 

RSI:

The momentum indicator highlighted negative divergence near the overbought zone (defined based on the past behavior of the stock). Presently RSI is in the down trend, which confirms the ongoing trend. 

Bollinger Bands:

The previous trend was well defined within the upper band and middle average line. After forming a double top, the price fell well below the lower band and closed decisively. This confirms the emergence of a downtrend. 

Ichimoku:

Well defined lagging indicator confirmed the previous entire positive rally. Price swiftly fell within the cloud, which challenges the positive trend. Span crossover highlights the possible emergence of a downtrend. 

ADX-DMI:

Bullish DMI was dominating since April till August. In the recent small downfall, -ve DMI spiked up well above highs of +ve DMI, highlighting downtrend is possibly gaining dominance. ADX confirmation remains pending. 

Putting it all together:

Trend reversal by forming double top formation near 88.6% retracement level with healthy participation on volume front, along with weak RSI, Bollinger band confirmation, & price within Ichimoku cloud with dominating negative DMI confirms "potential trend reversal". 

Levels to watch out:

Support zone: 2910

Potential target: 2650

Cheers,
Kunal

Statutory Disclosure:

Kindly note that this sharing is only for educational purpose. It is safe to assume that my personal position, my fund's position, and my client's, as well as relative's position, maybe open in the counter. Kindly prefer to take the advice of your financial advisor before initiating any position. Prefer to keep the risk-reward ratio in mind based on personal temperament, risk appetite, and financial background.