Nifty Metal Index Breaks Out!

JC Parets
August 5, 2020

We've been selectively participating in a few Steel stocks over the last few months as we waited for a signal to get more aggressive in the space.

Yesterday we got that signal as the Nifty Metal Index broke out to new recovery highs and reclaimed support on a relative basis.

In this post, we're going to outline what we're seeing in the sector and what we're buying to take advantage of this theme.

First, let's start with Base Metals (read for context), which continue to trend higher along with Precious Metals. In July when we were talking about them, we were staying very selective in the Nifty Metal space because it hadn't yet broken out despite the strength in Commodities.

As a result, we were focused on names like Jindal Steel & Power knowing that we'd get more aggressive once the sector index broke out. In the meantime, sticking with stocks like Jindal Steel & Power which had well-defined risk and a price catalyst (failed breakdown) made sense. Here was the chart we shared with members on May 26th.

Click on chart to enlarge view. 

And here's the updated chart today, which is meeting our price objective near 190. Up 80 points  (70% +) since then.

That's been a great trade for us, but there are now additional opportunities in the sector we want to be taking advantage of as the Nifty Metal Index breaks out. On the daily chart, it appears that as long as prices are above 2,175, then the bias is higher towards 2,930.

And from a structural perspective, we've got even more room to run. If prices are above 2,130, then the trend is higher towards its next major level of resistance near 3,475.

Additionally, prices are improving on a relative basis. Here's the Nifty Metal Index relative to the Nifty 100, which broke down below long-term support earlier this year but never saw any downside acceleration. Instead, prices have based and are now getting back above support!

This is a major development and suggests the sector is likely to outperform in the months and quarters ahead.

So how do we take advantage of this new theme? By owning the names showing absolute price momentum and relative strength.

Let's stick with Jindal Steel & Power. Before we were looking at a daily chart for a shorter-term trade, but the stock has actually improved a lot from a structural perspective. As long as prices are above 170, the trend is higher and we can look for a move back towards resistance near 335.

And relative to the Nifty Metal Index, the stock is breaking out of a base to 6-year highs. We want to own the leading stocks, and Jindal Steel & Power is one of them.

Below we're going to keep it simple and go through the rest of the stocks we can own in this space.

APL Apollo Tubes Ltd. building a nice base near all-time highs. A breakout above 2,225 would signal further upside towards 3,225.

And on a relative basis, the stock is hitting new all-time highs relative to the Nifty Metal Index.

Ratnamani Metals & Tubes continues to consolidate in a roughly 3-year base. A breakout above 1,150 would signal further upside towards 1,845.

And on a relative basis, the stock remains in an uptrend after correcting over the last 4-5 months.

JSW Steel is breaking back above its former lows. If prices are above 215, we can be long with a target near 340.

And on a relative basis, the stock is basing near all-time highs and starting to turn up. Looks good.

Mishra Dhatu Nigam has on our list for the last month or two. As long as prices are above 175, the bias is higher towards 305.

And on a relative basis, the stock is still correcting within a long-term uptrend.

Tata Steel was part of our July Conference Call and has been working well since then. From a structural perspective if prices are above 325, then we're looking for it to move back towards its highs near 700 over the coming quarters and years.

And on a relative basis, the stock is turning up within a structural uptrend relative to the Nifty Metal Index.

Hindustan Copper is a laggard, but has gotten back above support after briefly making new all-time lows. If prices are above 27.50, we can be long with a target near 77.50.

And on a relative basis, the stock has spent two years basing and looks ready to resolve higher.

Last on our list is Jindal Stainless (Hisar) Ltd., which confirmed a failed breakdown by closing back above 57.75. If prices are above that level, we can be long with a target near 120.

And on a relative basis, the stock recently made 2-year highs as it emerges from a long-term base. It looks like its trend of underperformance is over and we can look for it to outperform the Nifty Metal Index going forward.

That's our view on the Metal space right now. Notice how we're taking a longer-term approach by using weekly charts. A lot of these trends are reversing from down or sideways to up, so we want to give them ample time to work.

With that said, as long as Commodity strength continues then this sector and its components should perform well over the coming months and quarters.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team

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