In Tata Motors, RSI had given a breakout by moving above 50 levels from below and then it made a high of 80 then after that it is moving lower or retracing towards the centre line placed at 50 level, this behavior calls for a ‘RSI Pull Back Buy’.
Shabbir Kayyumi
RSI stands for Relative Strength Index. It is a momentum oscillator used to identify trend reversal.
RSI was invented by Welles Wilder Jr. The default look-back period for RSI is 14, however, this can be lowered to increase sensitivity or raised to decrease sensitivity. RSI calculates strength of a stock's trend and helps to predict their reversals.
Why to buy Tata Motors?
There are a lot of trading strategies using RSI; below mentioned is one of the most popular among trading community which involves Buy after completing retracement for higher movement.
In the past few days, RSI had given a breakout by moving above 50 levels from below and then it made a high of 80 then after that it is moving lower or retracing towards the centre line placed at 50 level, this behavior is called as ‘RSI PBB’ setup.
RSI PBB is Pull Back Buy setup which indicates, once RSI turns its tail upside after taking support from zone of 45-55 levels, target is previous swing high of RSI which was 80 or previous swing high of prices (Rs 94).
Currently, Tata Motors is going through this setup and we expect higher price movement towards previous high Rs 94-98 levels in coming days.
Buy Signal
1. Recent RSI gave a breakout and reached swing top around 80 levels.
2. After marking high of 80, RSI is retracing towards 50 towards mid-line standing around 50 mark.
3. Strong bullish candle formation near buying zone has given us confirmation of retracement complete and original trend begin.
4. Mid- term moving average 50 DMA placed around 79 levels defines mid-term trend very well augurs with bulls as prices are sustained and trading above it.
5. Decent volume participation while forming a bullish candle will also give additional confirmation.
Profit Booking:
Whenever price candle will be near previous swing high which is near Rs 94-98 levels.
Stop Loss:
Entire bullish view negates on breaching of a swing low and one should exit from long position.
Conclusion:
We recommend buying Tata Motors around Rs 81-80 levels with a stop loss of Rs 73 on a closing basis for higher targets of Rs 94 and Rs 98 levels as indicated in above chart.
The author is Head - Technical & Derivative Research, Narnolia Financial Advisors.
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