Checking In On Reliance
First, let's start with a structural perspective. Our guideline for the stock since its decade-long base breakout in late 2017 has been the Fibonacci Extensions of that base. Last November prices met our secondary target at 1,640, began correcting, and then broke out above that level again in June.
The thesis as it broke out was that prices were beginning their next leg higher towards 2,495, and that thesis remains intact. Also note that momentum is well into overbought territory, signaling the strength of buyers and reaffirming that the path of least resistance remains higher.
Click on chart to enlarge view.
And relative to the Nifty 50, prices broke out of a 12-year base in April and have been off to the races since. We met our first upside objective near 0.1905, but given the nature of this base we'd expect this outperformance last for many years to come (with corrections along the way of course).
Reliance has been a secular leader since it broke out in 2017 and there's little evidence that this trend is going to change anytime soon. For anyone with a timeframe of more than a quarter to multiple years, taking advantage of corrections to add to long positions continues to make sense.
If you have a timeframe of less than a quarter, but longer then a few weeks, then we're looking at a daily chart for our roadmap. Prices are nearing our price objective from 2,340-2,375, but our risk management level is down near 1,600. If you're trading it based on this timeframe and thesis, then "feeding the ducks" and taking some risk off makes sense.
The reason for this is that prices could correct down to 1,600 and the long thesis would remain intact...but we don't take round trips in trading positions. If you're an investor with a long-term timeframe then dealing with steep corrections is something you have to do to catch big winners, but if you're trading something with less than a three-month timeframe then you likely can't afford to sit through them.
This is also a good time to issue a reminder that our risk management levels are based on where the thesis is no longer intact, not some arbitrary drawdown or trailing stop. So in the chart above, if prices are above 1,600 then the bullish thesis remains intact...but that's a 25% correction from current levels! Not something most people can (or want to) stomach.
And if you have a timeframe of a few days to a few weeks, we want to be using the Fibonacci Extensions of the November-March correction. Our first price target of 2,085 has been met, so we only want to be long if prices are above that level. If we're not above that level, the opportunity cost and downside risk are too elevated to stay involved. But if prices are above 2,085, then our next upside objectives are at 2,375 and 2,835.
Regardless of your timeframe, Reliance has been a big winner and the weight of the evidence suggests it will remain so over the long-term. Prices have exploded off the March lows, so reviewing our risk management strategies across timeframes makes sense.
Can this momentum continue? Sure, but it's important to know who you are as an investor and what your plan for the stock is before risk happens.
Stocks showing relative strength were a big topic of our Member's-Only Conference Call on Tuesday, along with the other major trends we're taking advantage of across Commodities, Fixed-Income, Currencies, and Equities.
If you haven't watched it, I'd encourage you to check it out along with our Trade Ideas Page to see what themes we're profiting from.
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Thanks for reading and please let us know if you have any questions!
Allstarcharts Team