Steel Stocks: Showing Their Mettle

Updated: Jul 25 2004, 06:10am hrs
The indices are moving closer to their earlier intermediate tops as the Sensex and the Nifty have witnessed a two-month high with decent volumes in the last week. The Sensex and the Nifty will have to move past 5163.61 and 1626.70 to confirm an upward trend. However, these targets are below their 200 DMA, which means that the indices will confirm a major uptrend below their long term moving average. The accumulation seen in the trading volumes after four weeks of intermediate uptrend is not a healthy sign. Also, if the indices move past their earlier intermediate tops in the current intermediate rise, we will see a confirmation of a major uptrend below the long term moving average. This may suggest that the new bull run is not likely to be strong.

On the bullish side, we are witnessing more stocks going into a major uptrend. After the textile stocks, it was the turn of the steel sector, which witnessed strong volumes. Many of the steel stocks have closed past their earlier intermediate tops and have gone into a major uptrend. Thus, with more stocks going into a major uptrend, it is very likely that the indices may follow suit. The frontline pivotals are, however, not quite strong and majority of them have witnessed a major downtrend. This suggest that even if the Sensex and the Nifty confirm a major uptrend, the indices will not have a straight run- up witnessed last year. Hence, investors have to keep this in mind before taking up long positions. It will be better for investors to pick up long positions in an intermediate correction in strong sectors and in sectors, which are witnessing a bullish money flow.

The positive move witnessed last week suggests that even though the major uptrend may be confirmed by the indices, it will take some more time for the indices to bottom out. Today, I will take a look at the steel sector, which has seen strong moves in the last week.

Tata Steel

Tata Steel is in a strong intermediate uptrend and the stock has outperformed the indices in the current intermediate rise, as a result the relative strength line for the stock has moved above the zero line. The stock is currently below its 30 WMA. The current intermediate uptrend will face a resistance at this level. Only, if the current intermediate rise takes the stock past its earlier intermediate top of 425, the major uptrend will be confirmed. The other way in which the major uptrend can be confirmed is after the next intermediate decline. If the stock makes a higher intermediate bottom, than the possibility of the major uptrend will improve and a lower target will have to be crossed after the current uptrend ends. Thus, investors must wait for the next intermediate decline before getting into the stock. Investors will have closer stops after a higher intermediate bottom is formed.

Sail

Sail is another big stock in the steel sector, which has seen a strong move in the current intermediate uptrend. Like Tisco, the stock is also in major downtrend and is currently below its 30 WMA, where it will face a good resistance in the current intermediate rise. If the stock is able to move past 41.95 in the current intermediate rise, then the major uptrend will be confirmed. The strong volumes in the stock and the sector suggest that big investors are bullish on the sector. The bullish relative strength line suggests that the stock has outperformed in the current intermediate rise. As the stock has exhibited lower intermediate bottoms like Tisco, investors must wait for an intermediate correction before getting into the sector.

Uttam Steel

Uttam Steel is one of the mid-cap stocks in the steel sector, which has recently gone into a major uptrend by closing past its earlier intermediate top of 17.50 with strong trading volumes. The stock has seen very strong volumes in the last week and has also moved into a new high territory.

With not many stocks going into the new high territory in the present condition, it speaks volumes of the stock. Investors must use any minor correction in the coming week to pick up long positions in the stock. With the stock in the new high zone, there are not many hurdles and the stock might soon exhibit higher levels. The next resistance level of the stock is at 27.50, and 65.

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