Technical Check: Underperformer Maruti Suzuki sees Inverted Head & Shoulder pattern formation; know what it means?

Maruti Suzuki India Ltd which has been an underperformer rose a little over 10 per cent in last 1 year compared to 12 per cent upside seen in the Nifty50, and over 3 per cent gain was seen in the S&P BSE Auto index.

The auto stock with a market capitalization of more than Rs 2.5 lakh cr hit a 52-week high of Rs 9022 on 10 February but the trend went sideways post that amid muted global cues and selling by foreign investors.

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The stock rallied over 4 per cent in the last one month, and nearly 14 per cent in the last 3 months. The Budget 2022 also had plenty of opportunities for the auto sector.

The stock has formed an Inverted Head and Shoulder pattern on the weekly charts. It managed to breach the neckline on the upside placed at Rs 8320 in the last week of January which opened room for a fresh 52-week high above Rs 9022. A close above Rs 9022 will take the auto stock towards Rs 10,000, suggest experts.

An inverted Head and Shoulder pattern is formed when the price falls to a trough and then rises, in the second wave, the price fall below the previous trough and then rises. And, finally, the price falls but not as much as the second trough.

A breakout happens when the price starts rising after hitting the trough and breakout on the upside above the resistance level.

The scrip chart belongs to the auto sector which was in a rational uptrend for the calendar year 2020 and which was followed by a rather sideways tranche for the better part of 2021 (9 months), till October 2021.

The benchmark index, Nifty topped out in October 2021, while the Auto Index was in a lag of around a month that saw it claw to all-time highs.

The sector has been in a sideways tranche from thereon but seems mature & poised of new all-time highs, suggest experts.

“Unlike the sectoral structure, which has been in a sideways tranche for last 3 months; Maruti has been in a clear outperformance mode. Maruti stock price not just a 52-week high last week but vaulted to highest since August 2018,” Pushkaraj Sham Kanitkar, VP (Equities) at GEPL Capital Ltd, said.

“It can be seen from the chart, the longer-term chart of Maruti has formed an Inverted Head & Shoulder pattern, that is quiet popular amongst both, traders as well as technical analysts,” he said.

The chart recently broke up above the neckline around 8320 and sustained well above that, in spite of the lull in the broader markets. The more interesting portion is the symmetrical formations that the chart is showing.

“While a daily close above 8360 has helped the prices to kick in momentum till all-time highs of almost 10000, a move past 9050, will further add fuel to raise it above the recent high,” highlights Kanitkar.

“The projected implications will see it beyond all-time HIGHs at 12150 with a pattern projection interface for the inverted H&S. An initial stop loss should be placed somewhere below 7800; the current 50 DMA,” he recommends.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)