Technical View September 15, 2010

Maruti – ‘Filling in the gap!’

Price gaps in stocks tend to generate a lot of questions among traders. Why do these price gaps take
place in the first place? Do they always get filled? One stock which has seen its gap being filled is
Maruti. A gap was created in Maruti on 26th July 2010, when it plunged over 12% on heavy volumes
after the company announced an unexpected 20% drop in quarterly profit.

Before forming this gap, Maruti moved sideways below its 200-DMA and fell to a low of Rs1,191.
However, it proved to be a panic low and stock has advanced without re-testing these levels. In fact,
during the last six weeks, the stock has rallied by 14% recovering all its lost ground. It is now hovering
around its 200-DMA at Rs1,370.

Maruti deserves special attention as it has filled a gap that was created on 26th July 2010. Gaps are a
significant technical development in price action and chart analysis, and should not be
ignored.

Prices need not necessarily stay within the gap range and close inside it. Rather, it only
needs to trade through the gap.

Historically it has been proved that gaps do act as very strong support and resistance levels.

Taking support from the gap levels, stocks do tend to bounce back, but it is too premature to take a
call. Though, Maruti has filled its gap (as seen in the chart), it is yet to give a close above its
200-DMA and downward sloping trendline from September 2009 (both coinciding around
Rs1,371 levels). Two consecutive closings above the falling gap has led to a negation of its bearish
implication. A move above its 200-DMA will accentuate further buying momentum. In the near term,
the stock will attempt to scale past its intermediate peak of Rs1,435.

Maruti daily chart

MARUTI [N10999] 1349.00, 1361.80, 1348.70, 1360.05, 131456 1.01%
Price Avg2(S,100,S,200) Log IRIS

1400

1350

1300
Gap
1250

1200

Gap filled
1150
Source : www.SpiderSoftwareIndia.Com
Vol Lk
60.00

40.00

20.00

10:J J A S Dly
Source: IRIS, India Infoline Research

Technical Analyst: Pritesh Mehta - research@indiainfoline.com

Maruti – ‘Filling in the gap!’

Maruti is a buy above Rs1,380 as it offers four compelling reasons:

 Breakout from 1-year downward sloping trendline.

 Delivery-based buying around 200-DMA.
 Breakaway gap filled in this week.
 Channel breakout on the weekly chart.

Interestingly, Maruti also satisfies Gann’s 50% rule on the 2010 chart. The 50% rule states that, after
a sustained price move, prices will react to 50% (placed at Rs1,377). If the retracement exceeds 50%,
it will continue to the 62% level.

If Maruti sustains above Rs1,380 levels it could attempt Rs1,435-1,475 in the short-term.
Traders can initiate longs with a stop loss of Rs1,330.

Maruti daily chart

MARUTI [N10999] 1349.00, 1361.80, 1348.70, 1360.00, 128234 1.00%
Price Avg2(S,100,S,200) Downward sloping resistance line Log IRIS
0 1700
200-DMA 1600

1500

1400

1300

1200

1100

1000
200-DMA

900

Source : www.SpiderSoftwareIndia.Com
Vol Lk
Increased volume 60.00

40.00

20.00

09:AS O N D 10:J F M A M J J A S Dly

Source: IRIS, India Infoline Research

Technical View 2
Recommendation parameters for fundamental reports:

Buy – Absolute return of over +10%

Market Performer – Absolute return between -10% to +10%
Sell – Absolute return below -10%

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