BSE Auto Index
Somebody asked me about the auto index this morning. You may have noticed a while back up without the charts of Mahindra and Mahindra and Tata Motors and Ashok Leyland, all showing that they may be completing something like an A-B-C correction, in the areas the question on the potential for the medium to longer term bottom. Looking at the auto index chart the case is a little louder. The most recent decline was wave C of an A-B-C correction from the 2018 top.
While it does not appear like wave C is big it was equal to wave A. Even better prices are at the lower end of the reverse parallel channel of the highs. Starting from 2001 then we can Mark this decline as wave for an consider the stability of wave 5 up as long as the recent lower end. Now prices would not be as low as they are did not have bad news, this is where contrary thinking comes into play because most find it hard to believe by the auto sector should do well in the face of coronavirus.
But the markets do not take a six-month view of the situation but it to 3 year wave, and we cannot know exactly what will change in the environment for wave 5 up, what we can know is that the odds exist and the risk reward is favourable. If everyone knew what was going to go right prices would not be where they are today. Lastly the parallel channel has its top end stretching out till 55,000 while the index is at 13,800 odd.
