I love when stocks make textbook moves and Tata Steel has been one such stock. Let us try to read every twist and turn Tata Steel stock has done over the last five years.
Before we get started on reading the price action, let me outline some concepts that I will use to explain the chart
Science of Stock Price Action Concepts:
(1). A long-term average like a 200-week moving average (200 wma) separates a bull market from a bear market.
(2) In the Bull market, traders/investors buy the dips at support, and in bear markets, they sell at resistance.
(2) A Large Candle move sets the direction in the near term.
Tata Steel [April 2016-June 2019]
Here’s Tata Steel Weekly chart of that period:
Source: Chartalert.com
The red line on the chart above is 200 week ma. Imagine that like a river that separates a Bull market from a bear market. Anything above the red line is a Bull market and below that is a bear market.
Tata Steel was in a bear market till July 2016 as it traded below 200-week moving average (red line) but then on 15th July 2016, something happened and the stock made a large candle move (1); and with it, the stock started trading above the red line. Now, the Large candle move did set the bullish direction for the stock. But the price action indicates bias, it does not guarantee an immediate bullish move. As you can see in the chart above, Tata Steel stock took a long time to consolidate i.e. confirm support at 200-week ma. It’s like the stock getting convinced it’s no longer in the bear market. In six months, following the large candle move, all that Tata Steel stock did was traded in a band between 340 and 410
Tata Steel stock then finally made another move in Jan 2017 to 480 and crossed past 410, but then thanks to a market correction, the stock pulled back to 410 by the end of April 2017. It was a turnaround in July 2016 which did not yield much gains over the 10 months period, but then the stock made another large candle move (3). This started a vertical move and this time in the next 8 months the stock rallied from 440 to 740 i.e. 68% move 🙂 . Subscribers who read smarketpremium.com will understand why I love this number.
Good times don’t last forever
Tata Steel stock traded near 640 as a base but then in March 2018, it made a large candle move on the downside (5) and it became a matter of concern even though the stock was trading in the bull market territory. Tata Steel stock then created a small resistance line i.e. a level from where it was getting sold into and finally in Sep 2018, it sold off dramatically from 640. It collapsed to 200 week ma, a strong long-term structural support. The stock found support there in Jan 2019 and till June 2019, it consistently used to get buyers at 200 week ma.
Tata Steel [Jan 2019-May 2020]
Source: Chartalert.com
Tata Steel stock took support at 200 week ma (1) between Jan 2019 and June 2019 but then slipped below it, and broke down in July 2019. There was a dramatic slide and the stock was down all the way to 320 by the middle of August 2019. There was market stability and the stock was able to form a double bottom (3) and stage a comeback with the overall market and by Jan 2020, the stock was at 200-week ma – a level from where it sold off again thanks to covid. The stock declined from 500 levels to 260 levels all in 3 months.
Tata Steel stock was at 740 in Jan 2018 and by March 2020, it was down to 260 levels, that was the extent of price damage. The stock then found bottom with the overall market in March 2020 and did a dead cat bounce to 300 and traded below it till May 2020. And then started the healing process and it’s incredible if you think about the new twist and turn the stock did between May 2020 and March 2021.
Premium Post: Here’s what Tata Steel stock did over the last 12 months
Fundamentals don’t drive stock prices.
How people perceive those fundamentals drive stock prices.
As a market participant/trader, keep an eye on how the market views the fundamentals than being obsessed with your own version of fundamentals. It means look at the price action and it tells you without bias what the market thinks about the stock. Once you read the price action, go and find the reason why the market has such a view on the stock, and be aligned with it.
This is the level one mind training every individual requires to be in sync with market thinking. This is the real fundamental of Investing. I call it Science of Stock Price Action
If price action fascinates you – then Science of Stock Price Action is a great place to start.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purposes. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers