On This Day - 5 APRIL 2021
Metal Stocks to Roar Higher
Welcome to my weekly Momentum Moves video series in the Fast Profits Daily.
Every Monday, before the start of trading, I'll send you a video and a detailed write-up on the week gone by and what I expect in the week ahead.
I'll show you why the Nifty will move in the way I predict. I will also tell you the sector or theme which I am most bullish on for the week.
You can expect a detailed analysis from me every Monday morning. You can read the previous editions of Momentum Moves here.
Now, let's dive in to this week's edition...
The Week Gone By
The bear trap which we highlighted in last week's Momentum Moves might have saved you some losses on the short side. The roar of the bulls in truncated week took the Nifty past 14,800.
The Midcap index and smallcap index are back in momentum as they outperformed the Nifty gaining 5.51% and 4.96% respectively.
All sectorial indices ended on a positive note this week with the metal index leading by 12.66%.
So does the metal index still have a room to go higher? Should you focus on metal stocks?
We will be discussing the technical structure of copper and metals index.
The Week Ahead
The bulls started the April series on a strong note. The weak hands were taken out in the March series which ended at lower end of the series.
The bear trap which we highlighted in our previous edition is playing exactly as we suggested. The rally post these bear traps are strong and fast.
Nifty - The Bullish Technical Structure
The index reversed right from the gap area (marked purple) of 14,330-14,469 which are key levels as per the technical structure.
Nifty Daily Chart
In this chart, the rising trendline is still unbroken indicating the higher high-higher low bullish structure is intact.
The break of 14,878 has confirmed the higher high as per Dow Theory and the recent low of 14,264 will be the trend change level.
The recent reversal move has reclaimed the 50 DEMA (Daily Exponential Moving Average). The weekly close above the average also strengthens the bullish move.
The RSI (Relative Strength Index) which we highlighted in our previous edition has reversed from the demand zone of 40 and is trending bullish.
The daily chart is indicating the bulls are in control.
From a trader's point of view, I'm sure you will be excited to take an entry for a long setup on the Nifty. Are you ready?
From daily chart to hourly chart, the index is on the verge of a breakout of an inverted head and shoulder pattern.
Bulls Favourite Pattern - Inverted Head & Shoulder
From the lower low of 14,264 in the week ended 26th March 2021 to the reversal at 14,883 last week, the technical structure on short term chart has changed.
Nifty is on the verge of breaking out of an Inverted Head and Shoulder pattern which is bullish in nature.
Inverted head and shoulder pattern forms at the bottom of the bearish trend and a breakout above the neckline confirms an end to the bearish trend and the beginning of a bullish trend.
The targets are measured by calculating the difference between neckline to head.
In case of Nifty, it's nearly 600 points which means on the confirmation of breakout, we are heading to break the precious high of 15,431.75.
With the bullish pattern, the averages on Moving Average Convergence Divergence (MACD) are also trending bullish and the histogram is also above an integer line confirming the strong bullish trend.
Initial targets can be looked at 15,180 followed by 15,500 levels.
Metals - A Fresh Leg of Bullish Momentum
The metal index outperformed last week. It gained 12.66% hitting 4,000 mark for the first time since January 2018.
Before analysing the metal index, let's look at the COMEX Copper and Shanghai Composite Index chart as they are leading indicator for metal index performance.
COMEX Copper is trending bullish as it is forming higher high - higher low structure as per Dow Theory.
The price is at confluence of support at rising trendline from the lows of March 2020 and the 50 DEMA (Daily Exponential Moving Average) which is placed at US$ 3.93.
Copper Futures (COMEX)
RSI (Relative Strength Index) in the above chart is hovering around the demand zone and warming up for fresh leg of bullish momentum.
If we compare copper prices with Indian metal indices, the co-relation is high.
Nifty Metal Versus COMEX Copper
The percentage returns would differ but if we look at the trend, both follow each other.
Well, if we are talking about metals, we cannot miss China which is the second largest copper producing country after Chile.
Shanghai Composite Index - Bottoming Pattern
Shanghai Composite Index is trading at a long-term moving average of 200 days which we covered in previous edition of Momentum Moves.
The double bottom technical pattern has formed right at the support of 200 DEMA and breaks out of the neckline last week at 3,480.
Shanghai Composite Index
Copper is trading at support line and the China index forming a bottom. So is it the right time to buy metals stocks?
Metals Outperforming Against Nifty
This is a ratio chart of Nifty Metal against the Nifty. This means the price of Nifty Metal Index is divided by Nifty. If the ratio goes higher, Nifty Metals outperforms and vice versa.
Metals Versus Nifty Ratio Chart
Since the breakout in December 2020, the metal index is outperforming against Nifty. It has been nearly four months and the outperformance is getting stronger and stronger.
The fresh breakout last week confirms the outperformance is still strong and it is heading for a new all-time high.
Metal Index to Hit a New All-Time High
An underperformance for nearly two years from 2018-2020 has come to an end for metal index and it is performing like Thalaiva.
Index has resumed its rally taking support at rising trendline and 50 DEMA.
It has given positive crossover on Moving Average Convergence Divergence (MACD) with histogram turning above the zero line confirming the bullish momentum.
We believe the bullish trend will continue in metal stocks and it will outperform against the benchmark indices.
The bulls roared on the Nifty as it hit higher high surpassing 14,878. RSI has reversed from the support zone and is also heading higher.
On short term chart, Nifty is on the verge of breaking out of bottom formation in the form of the inverted head and shoulder with confirmation above 14,900 levels.
Initially, as a target above the breakout one can expect 15,180 levels and post that, it's likely to head towards a new all-time high.
The metal index technical structure looks promising for the bulls and in the coming weeks and months, it is likely to head higher above 4,500.
Research Analyst, Fast Profit Report
Equitymaster Agora Research Private Limited (Research Analyst)
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