CEAT Ltd has been on the buyers’ list in 2021. The stock has rallied nearly 27 percent this year, compared to a 12 percent rally in the Nifty50.
On a one-year basis, CEAT has performed in line with the benchmark index, up by about 50 percent.
CEAT, with a market capitalisation of more than Rs 5,500 crore, is well on track to surpass its 52-week high of Rs 1,763 in 6-12 months, suggest experts. The stock could hit a high of Rs 1,900, which translates into an upside of about 39 percent from current levels.
Founded in 1958, CEAT is one of India’s leading tyre brands and the flagship company of the RPG Group. Driven by the purpose of helping the world move safely and smartly, CEAT provides world-class products and services across 100-plus countries.
The stock corrected from the high of Rs 1,763 recorded on February 4, 2021, and is now trading near the Rs 1,300-mark. Post correction, CEAT found support exactly at the previous breakout zone, which is also a zone where there is a lot of demand.
This demand zone coincides with the 61.8 percent Fibonacci retracement of the previous rally, which started in December 2020 and lasted till February 2021.
What is a Golden Cross pattern?
Golden Cross is a bullish breakout that indicates a possibility of a further rally in the stock or the underlying. It is formed when the short-term moving average of the underlying asset, say 50-Day Moving Average, crosses the long-term moving average, i.e., 200-day Moving average, on any time frame chart (daily, monthly, weekly, or yearly).
“In June, the stock has confirmed a Golden Cross of 50 Week’s SMA, with 200 Week’s SMA at this demand zone. Generally, a Golden Cross pattern results in a massive upside in the stock. This crossover held more weightage since it is on a weekly scale,” Mehul Kothari, AVP, Technical Research, AnandRathi, said.
“We are quite optimistic about the stock here on. The weekly Relative Strength Index (RSI) is displaying a hidden divergence. Hidden divergence is when the RSI breaks its previous swing low while the stock doesn’t break the respective low,” he said.
RSI is a momentum indicator showing whether a stock is approaching the overbought or oversold levels. The RSI is plotted as an oscillator and can have a reading from zero to 100.
Kothari added that a positive hidden divergence indicates that the corrective move was temporary and the uptrend is likely to resume.
If we go on the monthly scale, it can be found that the stock found support at the Ichimoku Cloud, which is also a strong indication. This denotes that the stock is preparing for a fresh upside.
The Ichimoku Cloud is composed of 5 lines that show support and resistance levels as well as trends in one view.
Looking at the technical evidence, Kothari said that, at this zone, the stock is a decent candidate to go long for an upside target of Rs 1,900 with a stop-loss of Rs 1,100. The time frame for the same could be 6-12 months.
Disclaimer: The views and investment tips expressed by the investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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