The BSE Auto Index (closed at 8,571.4) comprises 11 companies that are associated with the auto industry. The companies are Tata Motors, Mahindra & Mahindra, Maruti Suzuki, Bajaj Auto, Hero Honda Motor, Cummins India, Exide Industries, Bharat Forge, Ashok Leyland, Amtek Auto and Apollo Tyres. Tata Motors and Mahindra & Mahindra have higher weight in the Index with 27 and 21.5 per cent respectively.

Long-term view

The BSE Auto Index bottomed out before the bellwether index in December 2008, touching a low of 2,127. Moreover, this was the first index to bottom out. Since then, the index was on a long-term uptrend until it encountered resistance around 10,500 in November 2010. One leg of the long-term up move appears to have ended in last November. Triggered by negative divergence displayed in the daily moving average convergence divergence indicator, the index changed direction. The index is on a medium-term downtrend since then. Besides, forming a bearish engulfing candlestick pattern in the weekly chart, the index tumbled 7 per cent during first week of January 2011. It has also formed a long bearish engulfing candlestick pattern in the monthly chart and has plummeted 13 per cent for the month.

The current downtrend can prolong until it finds the key long-term support in the band between 7,400 and 7,500 (which is approximately 38 per cent fibonacci retracement level of its prior up leg) in the long-term. Next significant support is in the range between 5,850 and 5,900. On the upside, key resistance are pegged in the band between 9,700 and 9,800 and subsequent resistance is at 10,500 levels.

Medium-term view

The index is hovering just above its immediate support level of 8,430. The daily relative strength index is featuring in the bearish zone and the weekly RSI is entering in to the zone. Strong close below this support will pull the index down to its next medium-term support level of 7,870. However, a reversal from 8,430 will take the index higher to its immediate resistance of 8,955 in the weeks ahead. Subsequent resistances are at 9,300 and 9,500.

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