Maruti-Suzuki has been one of the top performers this year and the stock has been a big out-performer versus the Nifty. The recent price action however suggests that profit-booking by big-players is happening. Before we delve any further, let me make it clear up-front that this post is meant to be just an observation / interpretation of the recent price action in Maruti Suzuki. This is NOT meant to be a view or an opinion or a trade idea.

Have a look at the daily chart featured below.

The negative divergence between the price action and the 14-day Relative Strength Index (RSI) is glaring. Let’s put that aside for a moment as the focus in the post is about likely “distribution” by big-players. If you pay attention to the volume signature, there has been a pronounced increase in volume at the top-end of the range which is a sign that there are sellers at higher levels. This would not be the case if the large-operators are in an accumulation-mode.

If the trading range constitutes accumulation, volumes typically tend to be higher near the lower end of the range. This is logical as anyone wishing to accumulate shares would want to do it at lower levels in a bid to keep the average cost down.

Now, notice two pokes above the upper end of the trading range.

The first poke happened in September 30, 2015 where volumes were relatively high. Notice how volumes bulged in the upper half of the range which is a tell-tale sign of selling by the biggies. The second poke above the trading range happened last week. Recall the newsflow leading upto this breakout has been extremely positive: Improved quarterly earnings and inclusion in the MSCI India index.

Despite this, the price has not managed to clear the trading range. Look at the volume accompanying the second poke, it is relatively lower compared to the first poke. The sharp reversal on Friday, with huge volume suggests that there are sellers at higher levels. If the newsflow is positive and buyers are in control, will it not be logical to expect price to breeze through the upper end of the trading range and zoom ahead?

This surprisingly is not the price action we get to see in Maurti Suzuki chart. It would not be out-of-context to suggest that a clear breakout above Rs.4,800, with higher volume, would be needed to calm the nerves of those harboring bullish view on Maruti. Let me just end the post right here and those interested in taking this discussion forward may look for similar examples and the follow-up action.