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Friday, August 11, 2017

Technical updates – Tata Chemicals and Tata Steel

The Tata Group hasn't been the quite the same after Ratan Tata decided to hang-up his boots. Cyrus Mistry ruffled feathers of the Tata Sons board, and his short tenure ended in litigation and acrimony. N. Chandrasekaran's tenure has started off more cautiously.

Low inflation and oil prices, and a stronger Rupee has helped keep India's current account deficit in control. Demonetisation and GST implementation led to a slowdown in growth. 

A slew of reforms introduced by the NDA government is likely to bring economic growth back on track from FY 2018-19. The stock market has been rallying in anticipation. The stock prices of Tata Chemicals and Tata Steel have benefitted from the rally.

Tata Chemicals


The stock price of Tata Chemicals touched a 2 yr low in Feb '16 and has been in an up trend since then. The 'golden cross' (of the 50 day EMA above the 200 day EMA) in May '16 technically confirmed a return to a bull market.

Note the consolidation within 'Rectangle 1' during Aug-Nov '16. A 'rectangle' is usually a continuation pattern - so the eventual breakout should have been upwards.

Negative divergences (marked by blue arrows) visible on all four technical indicators led to a breakdown below the 'rectangle'. However, the up trend resumed thereafter.

A breakdown below 'Rectangle 2' has now occurred - triggered by weak Q1 (Jun '17) results. Note that the stock had already corrected below its 20 day and 50 day EMAs following negative divergences visible on three of the four technical indicators. 

All four indicators are looking oversold. The up move is likely to resume after some consolidation around current levels.

Tata Steel


Tata Steel's stock was trading in a bear market below its falling 200 day EMA till
Feb '16. The 'golden cross' (of the 50 day EMA above the 200 day EMA) in Mar '16 technically confirmed a return to a bull market.

The stock price has tested support from, but not fallen below, its rising 200 day EMA since then. The company is gradually extricating itself from the leveraged mess created by its Corus acquisition back in 2008.

Daily technical indicators are looking overbought. The stock can correct some more. The dip is providing an adding opportunity. The stock may have 20-25% more upside left in the current rally.

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