MRF & CEAT: Top picks from Tyre Sector

Courtesy the soft trend in price of  natural rubber, the stocks from the automotive tyre industry have attracted buying interest at the stock market. Industry majors such as  MRF and Ceat have reported smart gains in their share price in the past  few months. Apollo Tyres has been a relative under-performer after its  decision to acquire US based Cooper Tire.

Reports indicate that the domestic  natural rubber prices have dropped by almost 10% in last three weeks  from Rs.177/kg to Rs.160/kg. Along with carbon black, natural rubber is a  key raw material for the tyre manufacturers. The soft trend in price of  natural rubber would offer relief to the sector which is affected by  the economic slowdown and a fall in automobile sales. From a technical perspective, we believe that MRF and Ceat to have potential to seek  higher levels.

Direct your attention to the daily chart  of MRF featured below. After a consolidation, the share price registered a smart breakout, from a symmetrical triangle pattern,  earlier this month.


It is also evident that the blue colored  lower and the centre lines are in sync with the price. We expect MRF Tyres to  rally to the upper trend line at 17,000. The bullish view would be  under threat if the stock falls below Rs.14,500.

Shifting focus to Ceat, this stock too  has reported handsome gains this month. From the daily chart featured  below, it is apparent that the red pitchfork lines have captured the  price action to the tick.


We expect Ceat to test the upper red  line at Rs.180. The positive view would be invalidated if the share  price of Ceat falls below the support at Rs.139.

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