Chart signals a pause in metal rally
For the first time in over a year, the index recently made a lower high and lower low pattern on technical charts. While analysts differ on the implications of this, they believe that the rally might have lost steam for the short term.
The Nifty Metal Index, comprising 15 stocks led by the likes of
, , , and , rose from a low of 1,480.7 on March 23, 2020, to a record high of 5,524.25 on May 11 this year. All corrections during this uptrend were characterised by higher highs and higher lows.
However, this year, the index corrected from its May 11 record high to a low of 4,987.25 on May 26 , before bouncing back to 5,421.5 on June 7, only to plunge to a low of 4,858.8 on June 18.
Though the index recovered to close at 5,049 on Friday, largely due to foreign fund inflows, technical analysts pointed out that the current month’s top of 5,421.5 and low of 4,858.8 were both lower than the May 11 high of 5,524.25 and the May 26 low of 4,987.
Siddarth Bhamre, research head at In-Cred Equities, said that a lower top and lower bottom were formed for the first time since the Metal Index’s rally began in March last year.
“This is a definite sign of a pause in the bullish wave,” Bhamre said, adding that “only time would tell whether the index would consolidate or correct from present levels.”
Rohit Srivastava, founder, India-Charts, said the picture on the fate of the rally would emerge “more strongly” in a few days but did not rule out more downside pressure till then.
“The dollar index has risen recently , but so long as it stays below 93 it wouldn’t impact the commodity supercycle while uncertainty would be out once China makes its stance clear on metal consumption,” said Srivastava.
A stronger dollar raises the price of dollar-denominated assets for holders of other currencies, reducing demand for them. China’s National Food and Strategic Reserves Administration said it would release base metal stockpiles from its reserves to rein in their prices but didn’t specify the volumes, which has increased market uncertainty. Bothe these factors have pressured metal stocks recently.
Global brokerage Credit Suisse downgraded Indian steel stocks to underweight from overweight last month citing decade high price to book value relative to the market.
Heavyweights like Tata Steel currently at Rs 1,095 is down 12% from its record high last month while JSW Steel and Hindalco were down 13% from their life highs after the brokerage downgrade and news of China curbing metal consumption.
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