Reliance Industries is in the news this week due to an investment from Facebook in JioMart.
Regardless of the fundamental merits or impact of this deal, let’s analyze the charts and see how the market’s digesting this information.
Let’s start with Reliance Industries on an absolute basis. This chart is the sheer definition of a “hot mess.” Prices are above support at 1,140 and below resistance near 1,600 and sitting directly at a flat 200-day moving average. This signals a lack of long-term trend and suggests continued volatility is likely on an absolute basis.
Click on chart to enlarge view.
Moving into the chart that we think really matters, Reliance Industries relative to the Nifty 50.
Here we see the stock breaking out to new all-time highs relative to its Large-Cap peers. This is a decade-long base breakout that cannot be ignored. “The bigger the base, the higher in space” is how we learned it, and this chart suggests further outperformance from the stock is likely as long as prices remain above their 2008/2009 highs.
While Reliance Industries is not that interesting for our timeframe on an absolute basis, on a relative basis we absolutely want to be long this stock.
The median stock in the Nifty 500 is down nearly 50% from its 2018 highs…and that damage is going to take significant time to repair.
Not all market participants have the ability to go to cash or short stocks during periods of market volatility. They have to be long. They don’t have the luxury of waiting around for the “perfect” opportunities to develop.
Instead, their job is to invest and outperform their benchmark. So what are they doing? They’re buying tocks that are showing positive momentum and relative strength characteristics. They’re buying stocks like Reliance Industries.
We don’t expect market conditions or the mandates of these funds driving the market to change anytime soon, which is why we continue to focus on the strongest and the weakest stocks in this environment.
All of this to say that, in our view, the real story in Reliance Industries is not the investment by Facebook. It’s not even yesterday’s 10% gains in reaction to the news. Instead, it’s the years of relative outperformance and fresh breakout to new all-time highs versus the Nifty 50 that we should be paying attention to.
Thanks for reading and let us know if you have any questions.