Ashok Leyland (NS: ASOK) has trapped many investors. Relief will be seen in a few days.
The company had very fewer competitors which helped it to sell it's all inventories with good margins a few years back. But now many international companies have entered the Indian market who were the leaders in their respective countries. The innovation in the new entrant’s vehicles helped them grow fast. So, years back it had stretched valuations. Now, the stock came near its "fair value" and due to uncertainty in metal prices and other factors that affected the entire automobile sector, the stock plunged even more.
Outlook:- Ashok Leyland has more chances of bouncing back than ever. On the above chart, you can see, the stock is near its very strong support of 75. We expect it can bounce 30% from here to level 100 and 8-10% bounce can happen in a few days. It has formed "Head and Shoulder" pattern during its fall and its sell target (from that pattern) is also completed. So, the bounce is more likely. You can see the stock has taken support 4 times from the level (shown by rectangles).
Investors can average their positions at this level.
Positional and Short-term traders also can take fresh buy position with a stop-loss of 73 (closing basis).
Positional and Short-term traders also can take fresh buy position with a stop-loss of 73 (closing basis).
Fundamentals obviously have not changed the stock, but this has been a good "demand zone" for long time investors and huge buying will surely come near these levels.
Mutual funds and elite investors usually search for stocks like this. Ashok Leyland at this level will be the best trade for "value investors", who look to buy stocks of reputed companies during their bad days, available at discounted prices.
Hedging Benefits:- The "Head and Shoulder" pattern (our most trusted pattern) was formed and long-term investors hedge their positions by selling for short-term in futures, to make money from that fall also. So, those investors will wind-up those shorts and huge short-covering will give additional bounce to the stock. While retail investors don't have hedged positions and they think of averaging by buying on every low, instead of for selling them in futures. That is mainly because they don't see the technical patterns, while elite investors obviously excel technical analysis and take benefits from such falls too.
Disclaimer:- Investors and traders must consult their financial advisor before making any trading or investing decisions.
We hope this helps our readers.
