Autos were some of the worst performers in 2018, and new lows on a relative basis to start 2019 suggest the first quarter may bring more of the same for this sector. This post will outline why we want to continue to sell strength in this sector, as well as the best ways to express this theme.
Below is a chart of the Nifty Auto Index hitting new 52-week lows relative to the Nifty 500. This trend of under-performance has been intact since early 2017 and appears to be heading back toward the lows it set in 2012-2013.
Click on chart to enlarge view.
While some individual stocks offered great mean reversion trades after a steep decline last September and October, the Nifty Auto Index only experienced a meager bounce. Prices have stalled again and momentum remains in a bearish range, suggesting this consolidation is setting up to resolve to the downside.
The cleanest way to express this bearish viewpoint at the index level is to define our risk at 8,650 by only being short below that level, and covering down near the 2016 lows of 6,850.
With that said, individual names like Eicher Motors may offer opportunities on the short side with better reward/risk and more potential upside.
This stock has already resolved its consolidation lower by gapping through support, suggesting we can be short if prices are below 21,575 and covering down near 17,075.
TVS Motor Co. failed to reclaim support at 567 and is now breaking below its short-term trendline. With momentum in a bearish range and prices back below support, we expect this decline to accelerate so we want to be short below 567 and covering down near 433.
To access the full list of Auto Stocks we want to short, you must be a premium member of All Star Charts India. Please login below or start your risk-free 30 day trial today.
Lost Password?