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.
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.