Here we go with our next round of the Top-Down Take post. At All Star Charts, we like to keep things simple and look at the bigger picture. We let the charts speak to us and then decide what to do. Always remember, the Trend is our Friend.
Today we’re taking a look at a sector that has been an outperformer in the recent past despite broader market correction. Nifty Metal is now moving from strength to strength as more constituents break out of long-term bases.
As the name suggests, the Top/Down approach means that we look at the big picture data first, and then funnel it down to the stock-specific idea.
Let us begin by taking a look at the index that comprises our universe. Here is Nifty 500, hovering near its support of 12,200. The index has been on a tear since breaching the level of 9,900. With the current short-term correction in the market, we’d like to keep a closer eye on this index.
Next up, we look at the sector that’s been in focus. Nifty Metal took a little time to get past the resistance level at 3,475 but has zoomed away ever since. the sector has performed well even on days when the broader market has corrected, indicating the inherent strength in Metals.
The next level to track is 4,200, beyond which 5000 comes into play.
When we look at this sector on a relative basis, we can see that the ratio breached its resistance, retested it, and then continued to move higher. This is Technical Analysis 101. The retest of a breached level provides more conviction in the breakout, circling back to the strength in the index.
The next step is to identify a stock that is strong on an absolute and relative basis.
Jindal Steel & Power is breaking out of a three-year base. Look at how clean that breakout is. Early 2018 was when the small-caps started getting hammered. A breakout above those 2018 highs is an important sign from the standpoint that the price has covered its ground and is now ready to move past the 2018 levels.
JINDALSTEL is bullish above levels of 294, with a target near 437.
Let’s take a look at JINDALSTEL on a relative basis.
First, we’ve taken the ratio of JINDALSTEL against Nifty 500, the universe we track.
The ratio has breached its resistance and looks good for the next leg of the rally. We also see a double bottom pattern on this ratio chart, which is a trend reversal pattern.
We compared the stock to its sector as well. Here we have the ratio chart of JINDALSTEL relative to Nifty Metal. The stock has broken out of a seven-year base! This is one big base to break out of and as we always say, the bigger the base, the higher in space! The ratio has also retested the breakout level successfully, indicating a good move in this stock going forward.
It looks like JINDALSTEL is checking all the boxes in our top/down analysis approach. With Metals performing well, this is one name that pops up from a risk-reward perspective.
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