AIA Engg – Resurgence on the cards?

AIA Engg – Resurgence on the cards?

AIA Engg shares showing signs of revival with the formation of inverse Head & Shoulders pattern

AIA Engg
AIA Engg Weekly Technical Chart

The stock has the capacity to test its all time highs once again with the renewed strength backed by the formation of technical pattern

The attractive buying opportunity comes with handsome risk: reward ratio of 1:6 (approximately) with the target being Rs. 1350 and the stop loss at 990

Ahmedabad Induction Alloy or most preferably called AIA Engg is involved in the business of designing, developing, manufacturing, installing and servicing of high chromium wear, corrosion and abrasion resistant parts. These products are mainly used by cement, mining and thermal power generation industries

The stock lived up to the expectations of a potential multi bagger as estimated by the value investors back in year 2009; the share prices growing up by 13 X in the last 5 years

The all-time highs made during Mar’15 was followed by sudden slump in the stock prices courtesy meltdown in commodity prices and as a result AIA engg customers, who are the mining companies, are going through their own internal adjustments to reconcile with a reality of a lower price regime

The FY’15 results took the share prices (coupled with Chinese yuan devaluation) to the lows of 880 Rs but the stock recovered from the lows up to 1045 Rs on the back of improvements but the joy was short-lived as the commodity prices kept plunging thanks largely to china market crash which triggered the global sell-off

The Q2FY16 results wasn’t cheered by the market due to 14% fall in net sales and the downside momentum intensified in the subsequent months to such an extent that the stock plunged to almost half of its all-time high price in Feb’16 amidst the growing concerns of the fall in commodity prices

Turn-around of things

The commodity prices founded its bottom towards the end of Feb’16 and started to recover which aided the stock to gain its ground supported by the improvements in the overall market sentiments

In less than a month period, the stock raised by almost 40% in line with the recovery of commodity prices

The stock faced resistance at 1045, the same level which prevented any further upside in Nov’2015

The share prices retraced but the fall was contained at the same levels which checked the downside in Aug’2015 (before the stock raised up to 1045 and then went on to fall upto 780 levels)

This whole process of

1st fall of share prices followed by retracements to 1045 level (Left Shoulder)

2nd fall to fresh 52-weeks lows followed by retracements to 1045 level (Head)

3rd fall up to 1st fall level and retracements to 1045 rupees (Right Shoulder)

clearly indicates the formation of inverse “Head & Shoulder” pattern which is quite opposite to head and shoulders pattern & is used to predict changes in a downtrend

Watch out for the stock price to pierce Rs. 1045 and close above this level in the weekly chart with a surge in volumes; if it happens successfully it can be regarded as breakout and an ideal place to go long for the target of Rs.1350

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