We discussed about the Nifty Metal index last week. The price chart and the relative strength chart were at important juncture, and we were awaiting clues from the price to suggest what is in store. Let us take that discussion forward. Here is the updated chart of the metal index..
There are lots of interesting observations in the above chart. The set-up has turned bullish with the price closing above the moving average this week. There is an open upside vertical count, and the price has edged closer towards the downsloping 45-degree trendline. It is also interesting to note that the price did not breach the prior mini-bottom and the 45-degree upsloping trendline from the recent mini bottom is still intact.
Let us take a quick look at the breadth of the metals index. Here is the metal index chart with the PF-X% breadth indicator.
This chart again is very interesting. There was a clear negative divergence between the price and the breadth indicator during the last leg up in the metal index. The subsequent consolidation helped the breadth cool off from highs.
Notice how the breadth made a higher low this week suggesting positive divergence. The breadth is improving and has crossed the 50% mark confirming participation of metal stocks. The PF Bullish Percent breadth indicator (which considers the stocks where a double top buy is triggered) has also improved to 66.6% suggesting swing breakout is happening in majority of the stocks.
The short-term undertone is bullish based on the price analysis. Before we wrap up, let us take a look at the relative strength charts too.
The relative strength chart is not too bullish. Price is below the moving average but the last column is X, suggesting outperformance. It would be essential for the relative strength chart to breakout above the downsloping trendlines to confirm resumption of recent outperformance.
Keep an eye on this RS chart for more clues. If you are adventurous, you might have already bought metals stocks this week. If not, you can consider exposures with a stop loss below recent swing low. More conservative traders may wait for the trendline breakout to happen in the RS chart.
Get started with a guided, follow-along course – where you will learn to make better trading decisions and grow yourself. It is designed to teach you all the aspects of technical analysis so you can trade smarter - when you make your strategies and decisions work for you.