Has Nifty Metal still got the firepower or is it sell on the rise scenario?

The NIFTY Metal Index comprises of maximum 15 stocks that are listed on the National Stock Exchange (NSE). 

The NIFTY Metal Index is designed to reflect the behaviour and performance of the Metal sector. The NIFTY Metal Index comprises of maximum 15 stocks that are listed on the National Stock Exchange (NSE). These stocks are APL Appollo Tubes Ltd, Coal India, Hindalco, Hindustan Copper, Hindustan Zinc, Jindal Steel, Jindal Steel and Power, NMDC, JSW Steel, Moil, Ratnamani Metals, Steel Authority of India, Tata Steel, Vedanta, and Welspun Corporation Limited. The index heavyweights are Tata Steel and Hindalco with 25% and 16% weightage respectively.

Since the Covid pandemic and China’s overdependence on metals, the metal sector has been the talk of the town. Some stocks of this sector have quadrupled their value since March 2020 lows. The YTD performance of Nifty Metal stands at 67.44% which is far better when compared with the 26.06% YTD performance of Nifty 50. However, the three-month performance of Nifty Metal is modest with mere gains of 2.13%. The three-month performance of Nifty 50, on a contrary, stands at 7.14%. Nifty Metal hit a high of 6312.20 on October 19. Since then, it is in correction mode falling about 13.6%. It is currently trading just 8% above its 200-DMA. We have also seen Nifty Metal consolidating for a few months when the other indices were scaling newer highs. So, now the question remains, “Has the Nifty Metal still got the firepower in it or is it a sell on the rise scenario?”

Currently, Nifty Metal is taking support at 5400-5350. The next support lies near the level of 5250. It is trading below its 20,50 and 100-DMA showing signs of some weakness. The 200-DMA continues to be the key moving average for the longer term and hence, it is likely to act as crucial support to the index. Thus, 5000-level is a crucial level for Nifty metal. RSI is weak at 39 and the Direction movement indicator shows no signs of reversal. It is forming a Doji candle near its support zone and it would be interesting to observe the follow-up candles in the coming days for some indication.

Any strong green candle can be a sign of reversal, till then traders must wait for some clarity.