[Premium] Exploring Opportunities In India's Auto Sector

The Nifty Auto Index has been range-bound for most of the year on both a cap-weighted and equal-weighted basis, so we've focused on individual stock setups within the sector as they emerged, but they've been few and far between.

In rangebound markets, both breakouts and breakdowns are often unsuccessful.

A good example of a failed upside breakout is Exide Industries Ltd. Although it's still in an uptrend, from a risk management perspective we can't be long this until it's back above 285 because of all the overhead supply this failed breakout has created.

On the short side, setups like Hero Motorcorp. Ltd. have failed to accelerate lower after breaks of support and new lows in momentum. While the stock is in a downtrend, its tendency to chop around our risk management level makes it a trade that's difficult to stick with.

Then there are range-bound stocks like Ashok Leyland, which is sitting right at a flat 200-day moving average. This is the type of stock we like to call a "hot mess", and certainly one we want to avoid until a clear trend forms.

With that said, there are two names potentially offering a good opportunity for us on the long side if we're cognizant of the other failed moves we've seen in the sector and are disciplined in our risk management.

First up is Mahindra & Mahindra, which hit our upside objective near 994 a few weeks ago and has been consolidating since. This stock remains in a strong uptrend, so if prices can get above 994 we want to be buying that breakout and targeting a move toward 1,270.

Endurance Technologies Ltd. broke out of a 7-month base in early August and is retesting the breakout area at 1,404. As long as prices are above that level, we can be long with upside targets of 1,605 and 1,929.

The Bottom Line: As you can tell form the evidence outlined above, the Automobile Sector remains one area of the market we're keeping in the "too hard" category. While there are a few opportunities in names like Tata Motors, Mahindra & Mahindra, and Endurance Technologies which we've outlined above, we're likely better served searching for opportunity elsewhere until the majority of its components begin trending in one direction or another.

Thanks for reading and let us know if you have any questions.

Allstarcharts Team