JSW Steel stock is about to provide an excellent buy opportunity with the completion of “Cup” pattern that can reward the investors up to 8 times the risk.
JSW steel is one stock, the prices of which have moved in 100% negative correlation with the Nifty movement for the last one and half years.
When Nifty made new highs after Prime Minister Modi occupied the chair as head of Indian Government this stock initially consolidated and started moving in the opposite direction.
When Index made all time highs during early 2015, there was no reprieve for this stock and it maintained its downward momentum due to steel industry in India being grappled with headwinds of an insipid demand, excess supply and pricing pressure driven by a surge in imports at predatory pricing.
But, things started to turn around by mid of 2015…
Nifty Index entered into a correction mode from Apr- July, whereas JSW started to form base around 850 levels to control further drop in the stock price.
The stock cemented the base solidly even though a sense of fear started to surface in the market post Chinese Yuan devaluation and Chinese market Crash..Stock market pundits started to predict yet another recession on the way and many good stocks started to tumble.
The market somehow wanted to leave behind the impact caused due to Chinese market and move on but domestic issues like GST bill blockage, Bihar election results hindered the chances of market recovery.
On the other hand, JSW Steel started to leave the base and made attempts to move ahead. The momentum picked up in December ’15 and the stock rose steadily up to rs.1375 per share in Apr’16 thus gaining 60% in six months.
In this entire process of slump, steady and rose the stock has completed the cup pattern which is characterized with round or ‘U’ shaped bottom.
Upon forming the cup portion, the stock started to correct which usually accompanies a spectacular rally, but the correction is gradual with ‘Low’ volumes and within the narrow range which are the characteristics of the handle.
How to trade this pattern?
The stock may move in the narrow handle channel for the next few days and whenever the upper channel is broken with a surge in volumes, it confirms the breakout and it’s the best position to enter into the long trade.
The target for the long trade is Rs.1900 with a stop loss of 5 % below the upper handle channel (for the breakout trades) or lower handle channel (for traders initiating position now)..Currently the lower and upper channel value is 1254 & 1344 respectively.
Risk-taking aggressive investors can initiate the trade at current position for the risk: reward of 1:7 or wait for the stock to fall up to 1244 levels (where it encounters 74.65 Fibonacci support) for the risk: reward of 1: 8.
Moderate investors and traders can wait for the breakout to happen and initiate the long position for the risk: reward of 1:5.