'We expect higher price movement towards resistance zone standing around Rs 6,600-6,700 levels in coming days.'
Shabbir Kayyumi
The Commodity Channel Index (CCI) is an oscillator originally developed in 1980 by Donald Lambert and featured in his book "Commodities Channel Index: Tools for Trading Cyclical Trends".
CCI is an oscillator used to identify cyclical trends in indices, ETFs, stocks, and commodities.
It measures the difference between a security's price change and its average price change. High or positive readings indicate that prices are well above their average, which shows strength. Low or negative readings indicate that prices are well below their average, which is a shows weakness.
This indicator measures the current price level relative to an average price level over a given period of time; default period is taken as 20. The CCI can be adjusted to the timeframe of the market traded on by changing the averaging period.
Why to buy Maruti Suzuki India?
There are a lot of trading strategies using CCI; below mentioned is one of the most popular among trading community which involves buying after bullish divergence formation keeping low as a stop loss for higher movement; however support of another indicator Bollinger Band can give additional support.
Recently, stock logged a key low of Rs 4,803 and managed to close higher above previous day’s close indicating bulls are active on lower levels and strong buying is emerging below Rs 5,000 mark.
At the same time, CCI traded below -200 which is called as oversold or reversal levels and possibility of bouncing back towards neutral levels of 0 are very high. Prices traded lower but closed above lower Bollinger band with a big bullish candlestick pattern also suggest buying setup and prices can move towards middle band of BB.
Moreover, CCI placed a higher low compared to earlier low, forming bullish positive divergence which imply bottoming out process and suggest buy on dip strategy. Currently the Maruti is going through this setup and we expect higher price movement towards resistance zone standing around Rs 6,600-6,700 levels in coming days.
Figure 1: CCI divergence and buy signal on Maruti
Buy signal
1. Recent CCI gave a breakdown and published swing low around Rs 4,803 levels.2. After marking low of (-216), CCI is retracing towards mid-line standing around 0 marks.
3. Strong bullish candle formation near buying zone has given us confirmation of retracement complete and original trend begin.
4. Short term moving average 20 DMA placed around Rs 6,430 levels, suggesting prices can retrace towards it.
5. Decent volume participation while forming bullish candle has also given additional confirmation.
Profit booking:
Whenever price candle will be near the resistance line, which is near Rs 6,700 levels.
Stop loss
Entire bullish view negates on breaching of opening levels of buy candle and one should exit from long position. In case of Maruti, it is standing around Rs 5,325 mark closing basis.
Conclusion
We recommend buying Maruti Suzuki India around Rs 5,700-5,800 levels with a stop loss of Rs 5,325 for higher targets of Rs 6,600 and Rs 6,731 levels as indicated in above chart.
(The author is Head - Technical Research at Narnolia Financial Advisors.)
Disclosure: Narnolia Financial Advisors/Analyst (s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
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