Technical Analysis

BSE Metal Index turns lustrous

Yoganand D. | Updated on November 15, 2017 Published on January 14, 2012

The BSE Metal Index has jumped almost 10 per cent last week, with main contribution coming from Tata Steel that surged 14.6 per cent during the week. Among other gainers were Hindalco Industries, which added 12.7 per cent, Coal India, which advanced 7.4 per cent and Jindal Steel that jumped 8 per cent during the week.

BSE Metal Index constitutes 11 stocks in which Tata Steel enjoys the highest weight of 20 per cent. Coal India and Jindal Steel have 15.6 per cent and 15.2 per cent weights respectively, while Hindalco Industries and Sterlite Industries enjoy 12.8 per cent and 11.2 per cent weights respectively. The significant long-term resistance band between 18,000 and 18,500 halted the index from moving beyond this resistance during the year 2010.

It subsequently reversed downwards in January 2011 and has been on an intermediate-term downtrend.

While trending down, the index penetrated its long-term trend deciding level at 11,300 in November 2011 and accelerated lower to 9,200 levels. However, the index found support in the band between 9,200 and 9,500 in December 2011.

Taking support from this band and triggered by positive divergence in the weekly relative strength index and moving average convergence divergence, the index changed its direction.

We also notice formation of a falling wedge pattern spanning between October and December 2011, supporting the trend reversal. Last week's rally broke through this pattern. The index is now heading towards 11,300 resistance level.

Strong move above 11,300 will push the index higher to 12,150 and to 12,500. Next important long-term resistances above 12,500 are pegged at 13,300 and 14,000 levels. However, failure to move above 11,300 will reinforce the downtrend and drag the index down to 9,900 and 9,500. Tumble below 9,200 support can pull the index down to 8,000 and 7,000 levels in the long term.

Medium-term view

Since taking support in the zone between 9,200 and 9,500 last month, the index has been trending higher. It breached its 21- and 50-day moving averages recently. The daily indicators have entered into a positive territory, signalling bullish momentum.

However, the index is currently testing key resistance at around 10,900 levels. Reversal from this resistance will bring the index downwards to 10,200 and 9,775 levels. Subsequent, supports for the index are at 9,500 and 9,200.

On the upside, an emphatic break through of 10,900 will pave way for the index to rally to 11,300 and 11,700. Resistance above these levels are at 12,150.

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