Traders and investors study markets through price charts. The powerful visual tool offers great insight into what the stock is doing. Here’s one large-cap stock that has made good solid progress over the last 9 months and now looks set for a momentum move. It’s a great case study to understand how slow and steady progress in stocks can lead to strong momentum.
Case Study – Tata Steel
Tata Steel stock was an underperforming stock in CY2022-2023 and as it happens, nobody paid attention to the stock but over the last 9 months, the stock has done all the right things. And when the stock starts doing the right things, the perception changes and it starts to get the attention it deserves.
As you can see in the chart above, Tata Steel took support at 200 dma on 26th June 2023 [Point 1]. The price was 110 back then. Many stocks take support at 200 dma and bounce, so Tata Steel’s bounce from 200 dma was nothing extraordinary. Tata Steel rallied, pulled back to take support at 50 dma/115 (Point 2) and then rallied to 135 by the middle of Sep (Point 3). In 2.5 months, Tata Steel stock had rallied 22% – good but nothing extraordinary.
When the correction happened in the Sep-October timeframe, Tata Steel stock broke down below 50 dma and took support at 115/200 dma (point 5). So imagine somebody bought a Tata Steel stock at 200 dma on 26th June at 110 would have been up 4.5% by the end of October 2023. That’s how disappointing the move was.
The Next Bullish Move
Tata Steel stock offered a buying opportunity on 01 Nov at 200 dma. Price: 118. This time the stock moved past 135 and closed the year 2023 at 140. The stock since then has pulled back multiple times to take support at 50 dma with a buildup in volume. The uptrend is quite visible on the chart
Tata Steel stock is set to outperform the market now. The markets are not certain and if there is a big market sell off, Tata Steel stock can pull back to 200 dma which stands at 130, but if the market holds up, Tata Steel stock can surprise on the upside.
Trading Strategy: Buy Tata Steel at 149 with stop loss below 137
Source: Chartalert.com
Learn the Science of Stock Price Action
Fundamentals don’t drive stock prices.
How people perceive those fundamentals drives 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 looking 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 the Science of Stock Price Action
If price action fascinates you – then Science of Stock Price Action is a great place to start. I only cover the Indian stock market here.
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
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