TataSteel: A Steel Mammoth
Tata Steel is one of the top steel producing companies globally with annual crude steel deliveries of 27.5 million tonnes (in FY17), and the second largest steel company in India (measured by domestic production) with an annual capacity of 13 million tonnes after SAIL. Tata steel has wide operations in 26 countries which was achieved mostly after they acquired Corus in Europe. Though acquisition happened at a wrong time, just before financial crisis of 2008 which deepened loss in Balance sheet for prolonged time. But since they have decided to liquidate few assets to reduce debt, we have seen some improvement in cash flow of the company. Recent, Tata Steel Quarterly result saw 53% rise in Profits YoY but analyst are worried about its acquisition of Bhushan Steel as they had raised debt. But management showed confidence in buyout with a reason that bhushan steel is giving tata steel a benifit of shipping with the company. So fundamentally worse is over for the company and we could see them back as a Steel Mammoth .
Tata Steel chart study
Tata Steel has been one of the under-performing stock in Nifty 50 after 2008 financial crisis. Even the peers such as JSW Steel has done much better technically since last 5 years. But recently Tata steel charts have shown signs of a strong recovery from oversold zones on weekly and monthly charts. Though stock has recently fell off from the highs of 700 but comparing it with 2008 highs of 900+, stock has still alot to cover to be in-line with Nifty benchmark index again. So as a investor, any bullish pattern, at any price below 900, at any time, should be considered as an buying opportunity. And today, i Spotted a “Inverse Head And Shoulder” pattern on Daily charts
What is Inverted Head and Shoulder pattern?
A inverted Head and Shoulder pattern is a chart pattern which looks similar to an inverse of a human Head and shoulder. An inverse Head and Shoulder has three phases before its breakout for a trade…First Phase, also known as Left shoulder where price declines to a new low and rallies back for a short pull back. Second phase, also known as Head of the pattern where prices declines further deep making a new low beyond Left shoulder and rises back to the level where left should rally resisted. Third phase, known as Right shoulder , where prices decline again but takes support at the level where left shoulder took support and rallies back to the highs where Left shoulder and Head resisted. But the next day we see a breakout above the resistance line which gives an opportunity to trade the chart. Target on such stock is the Difference of High and Low of Head which is added to resistance level on breakout to give upside target.
Tata Steel trading opportunity
Attached is a tata steel daily chart after todays closing and i spotted a Inverted Head and Shoulder pattern as described above. As you all could notice, i have marked the pattern which is clearly visible and has given a breakout today for a bullish reversal.. So first lets examine the pattern
Left Shoulder: Where we first saw decline from 585-538 and then rally back to 585
Head: Where we saw a decline from 585 which made lower low than left shoulder at 493 and a rally back to same level of 585
RIght Shoulder: Where we saw a decline from 585 mark to a low almost at the left shoulder low level at 560 and a rally to 585 until friday
Now lets calculate Target
Difference of Head High and Low= 585-493=Rs, 92
Now adding difference to breakout level = 590+92=682
So minimum upside target of the pattern is 682
Looking at other technical parameters on the daily chart, indicators are supporting bullish momentum while stock is taking strong support at all short term moving averages around 540-580 zone. The only strong hurdle to 682 target is 622 mark which is a 200 day average. But Looking at the recent volume accumulation, we can expect this hurdle to be breached easily.
So now strategy,
We recommend to buy Tata Steel for short term target of 682 with stop loss of 580 which is the support zone of all short term moving averages. But you guys can hedge by buying 580 PE of Tata Steel for August expiry.
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