When the market falls in love with a theme, then everything rallies. It’s fascinating if you look at the big picture, and how textbook the rallies are. Here’s how the metal sector rally unfolded in 2021.
Tata Steel Price Action
Tata Steel stock doubled between Sep 24 2020 and early Jan 2021. And so when it pulled back from 700 to 600 around the end of Jan 2021, it did not create that excitement as traders were looking for a deeper pullback to 100 dma which never happened. There was a buying opportunity at 600, which was hard to take because traders anticipated a deeper pullback back then. I am not going to fool you by saying it was an obvious trade back then.
Source: Chartalert.com
Here’s what happened:
- Tata Steel stock rallied from 600 to 700 [Point 1 to Point 2]
- The stock then took support at 50 dma multiple times.
- The 50 dma base acted as a launchpad and on 24th March, the stock took off, and in 1.5 months, it rallied 57%.
A great trade I wish I would have visualized when it was unfolding.
JSW Steel followed the same script
JSW Steel stock had a nice uptrending look with 50 dma as support between Sep 24 2020 and early Jan 2021 and the stock was back to all-time high resistance around early Jan 2021. The stock traded sideways between early Jan and 18th March around the resistance and then it made a big move to 440. It was a breakout to an all-time high in a sector that the market loves.
Source: Chartalert.com
Here’s what happened: JSW Steel stock just took off around the same time as Tata Steel and within 1.5 months, the stock is up 65%. Birds of the same feather flock together.
Did I cover Tata Steel and JSW Steel as specific pick on smarketpremium.com, the answer is No. I was more focused on the other stock: SAIL.
I covered SAIL as a pre-budget pick at 58.
An incredible Bull market in
Tata Steel
JSW Steel
SAILAll these stocks were attractively placed before the budget day pic.twitter.com/P4s8ey7cFM
— Deepak Singh (@smarket) April 8, 2021
SAIL stock also rallied between Nov and early Jan when it rallied from 40 to 80 and then had a decent pullback to 55 by the end of Jan. It was then I recommended the stock.
Source: Chartalert.com
Here’s what happened: SAIL stock rallied to 80 and then pulled back took multiple support at 50 dma and just like Tata Steel, it took off from 70 around March 24 2021 and now in 1.5 months, the stock is up 90%
When it comes to stock selection, the theme matters the most.
Tata Metalliks was my other pick back in Jan 2021 when the stock broke out with a large candle above 700.
Source: Chartalert.com
Tata Metalliks stock post-breakout consolidated for 2 months and then again around March 24, 2021, when the stars aligned the stock took off and has rallied 54%
What does all this mean?
There is always some loud music happening in the market and as a price action reader, pay attention to the theme. If you are successful in reading the theme, you will get the stock selection right, and even if you are able to catch one of them, you will do fine.
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