Gaurav Bissa
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The Nifty Metal index is showing strong signs of multi-month outperformance compared to Nifty as well as the broader market going ahead. The rationale for the same is mentioned below
Nifty Metal
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The metal index made a bottom around 2016 and witnessed a strong up move since then to make a fresh high. However, post that it has been falling steadily making lower high and lower lows implying the downtrend has been strong.
The index again made a low of around 1,500 which was also the level it touched in 2016 before heading higher. On the monthly charts, the last two candles have made similar lows implying some buying interest emerging in the index.
The index is now bouncing from the long-term demand/support zone as shown in the chart above (blue area). This implies as long as the marked area is sustained this can be one of the first sectors to bottom out. And, hence provide the outperformance.
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Above is the Nifty Metal/Nifty ratio chart on a monthly time frame. The ratio has formed a bullish harmonic ‘Altshark’ pattern which is a reversal pattern in nature.
The prz (trigger point) comes around 0.18 with negation below 0.16. On the upside, the ratio can touch 0.25 in the coming months.
Another interesting aspect is – RSI, which has shown positive divergence which supports the postulate of the ratio going higher.
The above chart is the Nifty Metal/Nifty500 ratio which takes into account the broader market as well. The above ratio is also forming a bullish harmonic ‘Atlshark’ pattern on monthly charts with prz (trigger point) around 0.22 and negation levels below 0.19. On the upside, the ratio can touch 0.31 in the coming months.
Thus, based on the charts above it can be inferred that the jump in the ratio is likely to happen due to an upside in the numerator which is the Nifty Metal index thus supporting the postulate of outperformance going ahead.
(The author is Assistant Vice President - LKP Securities)
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