SAIL: Will This Navratna Shine in Metal Space?

Last Updated on Nov 10, 2022 by Aradhana Gotur

Markets have been consolidating near highs with a positive bias and many counters have started their positive journey too. We even saw good traction in metals due to global factors. One of the counters in the said space is SAIL, which seems to be participating a bit late and offering us the best risk reward.

Let’s go through all the different timeframe charts and studies to understand the formation.

Table of Contents

Monthly: Time Cycle

On the monthly chart, since inception, we can see some repetitive behaviour. Alongside two major curves, we can see clear two major rallies. The one bullish rally, which lasted till 2008 and another bearish one, which lasted till the bottom of 2020. The time cycle (leg) between them is almost similar, which is approximately 142-145 months. After the bottom on the 145^th month, the price spiked massively for almost a year, which is validating the cycle.

Monthly: Price and Volume profile

Before a sizeable rally during 2004-2008, a massive volume activity was noticed in the counter and then a trend emerged. Certainly, the rally wasn’t linear UP, there were many whipsaws, forming clear higher tops and higher bottoms. Even sizeable volumes are noticed during the bottom formation of 2020 and the price has started its uptrend. The second interesting fact to notice is that the rally is emerging from almost the same zone, making it even more attractive. Price has retraced near lows and starting its journey again, making a perfect higher top-higher bottom formation. Worth keeping watch from a positional perspective.

Weekly: Fibonacci Ratios

After making the bottom during 2020, the price started a massive uptick and presently retraced to form a higher bottom. This higher bottom halted right onto 61.8% retracement and a higher bottom of the immediate small bounce is seen. This seems the best support zone and one can consider this to be the best level to add position from a longer time horizon.

Weekly Price action

After the advance from 2020 lows, the price took resistance of a yellow trendline and declined from the highs. Am intermediate white trendline was broken for a while. But prices have again claimed the same zone, making it a bearish trap area. Certainly, the most recent low can be the best support zone to keep in mind with the mid-term target being near a yellow trendline. Above that resistance zone, one can expect a massive rally from a positional perspective.

Weekly RSI

This is a bit zoomed chart of the weekly timeframe. We can see that the down trendline is broken on the higher side in the recent bounce. RSI, which is a momentum indicator, is clearly above 50 and inching higher, which is confirming the gathering strength in the ongoing bounce. “Achche din” for the counter (even from a mid-term perspective) is likely on cards.

Weekly MACD

MACD is a lagging indicator and confirms the trend after emergence. MACD crossover from the extreme lows is the first sign of turnaround. An interesting part to note is that MACD has never been so low in the last 5 yrs. In near future, as MACD crosses the zero line, we shall get more conviction on a newly emerged trend.

Weekly Supertrend

Supertrend, like moving averages, is a lagging indicator. But as we can see, the maximum rallies are captured using a simple trend-following indicator. If we focus on the recent price consolidation, we can see that the price is about to give a breakout of that consolidation. Supertrend is also placed in the same zone, which is making it even more reliable. This indicator can be an add-on conviction indicator for us, along with other discussed observations.

Ratio chart: SAIL vs Nifty Metal

SAIL ihas relatively been a slow-moving counter. The counter witnessed a massive underperformance over a decade. Interestingly, on the ratio chart, we can see a falling expending wedge. Most recently, in the last 2 yrs, the ratio chart has reached that extreme low and forming base near 2020 low. That is making the counter worth seeing. RSI is showing a bullish divergence and opening up the possibility of a sizeable bounce from here, which means an outperformance of SAIL over the index.

Ratio Chart: SAIL vs Tata Steel

It is somewhat illogical to compare SAIL with Tata Steel. But in technical analysis, we give importance to price action, and so all arguments are certainly valid. Almost after 22 yrs, the ratio chart of SAIL and Tata Steel has reached an extreme low, which was seen somewhere during 2000. The downside (based on chart data of the last 22 yrs) seems limited and upside may surprise the entire market too. Worth considering counter 🙂

Ratio Chart: SAIL vs Jindal Steel

SAIL and Jindal Steel ratio chart has also reached extreme lows of 2012. 10 yrs low on the chart is showing somewhat consolidation (base formation) near those lows. Again, it is showing limited downside but huge potential for upside.

Putting it all together

The monthly time cycle of 142-145 periods, price action with volume similarity of 2004-2008 data, Fibonacci support at 61.8% of the recent retracement, reclaiming of lost ground on the weekly chart making bearish trap on the lower end, bullish RSI above 50 and pointing higher with downtrend breakout, MACD crossover from extreme lows (likely crossover above zero line), (pending breakout of Supertrend which is coinciding with price consolidation breakout) is making the counter very attractive from positional perspective.

Ratio charts of SAIL with Nifty Metal, Tata Steel and Jindal Steel is making it worth considering with an extremely favourable risk-reward perspective and supporting very less possibility of underperformance going forward.

Readers, understand that SAIL is showing reversal signs after 20 yrs. There are many arguments discussed on different timeframes supporting a bullish view on the counter. Things are never believed when the worst is around, but massive rallies emerge from the lows and then catch the eyes of all market participants. The risk-reward on the counter is looking very attractive and makes it worth considering from a mid to long-term perspective.

Statutory Disclosure: Kindly note that this update is only for educational purpose. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open in the counter. Prefer to take the advice of your financial advisor before initiating any position.

Author
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Kunal Rambhia

Kunal is a fund manager at The Streets, a private fund. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.