In the realm of investments, identifying opportunities that align with both technical indicators and fundamental analysis can pave the way for lucrative outcomes. One such prospect emerges within the domain of large-cap metal stocks, presenting an enticing avenue for investors seeking robust returns.

A look at the daily chart shows that an uptrend started with TATASTEEL crossing above Rs. 110 levels in June 2023; this also marked the stock crossing above all three key moving averages. Since then, by and large, the stock has remained on a rising trajectory; the corrective phase that was seen between September and November last year found support at the 200DMA which subsequently led to the resumption of the uptrend.

Zooming out to see a bigger picture on the higher timeframe weekly charts, technically speaking,  it reveals compelling insights into the trajectory of this stock. Following a peak near Rs. 153 in July 2021, a corrective decline ensued, persisting for the subsequent year. However, the tide gradually turned as the stock began to form higher tops and higher bottoms, indicative of a shifting  underlying trend. Crucially, this move facilitated a notable ascent for the stock as it took it above both the 50-week and 100-week moving averages, underscoring a bullish undertone in the long-term trend. 

Recent developments have further bolstered confidence in the stock’s trajectory.  The stock recently tested the previous resistance near Rs. 150 levels  leading to the formation of a classical double-top on the weekly chart. Subsequently, a breakout from this established resistance ensued, accompanied by a surge in upside momentum. Despite a brief stint of selling pressure witnessed in the benchmark index, the stock remained resilient, retracing back to its breakout level before showcasing signs of resumption.

This resurgence has been underpinned by a uptick in trading volume, corroborating the prevailing bullish sentiment. Furthermore, indicators such as the On-Balance Volume and Relative Strength (RS) have lent credence to the optimistic outlook. Both indicators have experienced breakout moments from downward-sloping trendlines, signaling a favorable shift in momentum. Notably, the RS indicator showcases that the stock is outperforming the benchmark Nifty 500 index, further accentuating its appeal. 

Intriguingly, the RRG JDK RS Momentum indicator has crossed the 100 mark, indicating a notable uptick in momentum. This development augments the investment case, offering a compelling  opportunities for investors. 

Importantly, the Fed has hinted at three rate cuts this year. Even if one of two such rate cuts happens, it will keep the Dollar Index under check which is likely to aid the metal and commodities stocks. From an investment perspective, the breakout from a longstanding resistance after nearly two and a half years underscores the bullish momentum underlying this stock. Consequently, it presents an attractive proposition for investors, with the potential for an upside of approximately 10%. As a precautionary measure, any price movement below Rs. 140 may warrant reconsideration.

In summation, the confluence of technical indicators, coupled with favorable market dynamics, positions this large-cap metal stock as a promising investment opportunity.

– Foram Chheda, CMT

The markets have been on a roll this year. The global equities had a strong year and Indian equities were no exception. The headline Index NIFTY50 has gained 17.32% on a YTD basis. The broader markets fared even better with the broad market index NIFTY500 returning 22.75% over the same period. Looking at sector indices, all sectors have ended positively with the maximum gains coming from the Realty space with the NIFTY Realty Index gaining 74.97%. In comparison, Banknifty has performed least returning 9.93% on a YTD basis.

The markets in general are undoubtedly overheated and stare at imminent consolidation. So, when it comes to looking for stocks that still have room for themselves, is an equally difficult task. During such times, it is of paramount importance that one should look for stocks that have either a strong or improving relative strength or have not run too far ahead of their curve.

One such stock is that of an energy major, Reliance Industries Limited (NSE: RELIANCE). A closer look at the technical charts and the stock’s performance throws interesting insights.

RELIANCE has the second largest weight in the Nifty Index at 9.11% after HDFCBANK which has the highest weight at 13.25%. When we look at the Nifty Energy Index, the sector index of which RELIANCE is a part, the stock has the highest weight of 31.32%. The energy index’s top five constituents make up over 77.09% of the Index. RELIANCE alone makes up one-third of this sector index.

Given its important and heavy place in both the frontline as well as the sector Index, RELIANCE has relatively underperformed both the NIFTY ENERGY Index and NIFTY50 on a YTD basis. Looking at the YTD data, while the NIFTY ENERGY Index and NIFTY50 have returned 26.04% and 17.32% respectively on a YTD basis, RELIANCE has returned just 9.32% over the same period.

This leaves a lot of room for potential resilient performance and some alpha generation in the stock.

The weekly chart for RELIANCE shows that over the past three years, the stock hasn’t practically returned anything. It tested the level of Rs. 2482 in October 2021; since then, it has just moved sideways in a broad trading range. Besides making incremental highs, it has failed to get any directional uptrend. This means that anyone who has invested in the stock around or after October 2021 may find herself sitting with nil to very negligible gains.

However, going by the recent price action, the stock looks set for a fresh breakout again. When this is read along with other technical indicators, it paints a prettier picture.

Going by the pattern analysis, RELIANCE is seen trying to break out from a rectangle pattern. The potency of the move can be gauged by the price making a higher bottom inside the rectangle before trying to break out of it.

On-Balance Volume, which is a volume oscillator, has already hit a new high before the stock doing so; this is a sign that the attempt to break out of this technical pattern is supported by higher volumes. The rolling of the stock inside the improving quadrant of the RRG hints at a potential beginning of a phase of relative outperformance of the stock against the broader markets.

While RSI marks a fresh 14-period high, the weekly MACD stays positive and above its signal line.

If the markets consolidate, the stock is likely to show strong resilience and it enjoys robust support in the Rs. 2300-2400 range so long as it keeps its head above Rs. 2300 level. Anty slip below this will negate this technical reading.

Going by this, even if we see some temporary retracement or minor consolidation, the stock qualifies for inclusion in the portfolio. One can start to accumulate RELIANCE at current levels with each minor decline if at all that happens. Applying the classical price measurement implications, the stock has the potential to test Rs. 2900 levels in the coming year which would mean a potential price appreciation of 13.25% from the current levels.

Foram Chheda, CMT
Technical Research Analyst