Technical Analysis

Bullish bet on Tata Steel

KS BADRI NARAYANAN | Updated on January 20, 2018 Published on May 15, 2016

Silos stand at the steel works operated by Tata Steel Ltd. in Port Talbot, U.K. on Thursday, March 31, 2016. Tata Steel, part of India's biggest conglomerate, said a slump in global prices has forced it to consider selling its U.K. business after concluding that a restructuring of its strip-products unit, centered on Port Talbot, is unaffordable. Photographer: Chris Ratcliffe/Bloomberg   -  Bloomberg

The long-term outlook for the stock of Tata Steel (₹322) still remains negative. That will change only if the share price of the steel major closes above ₹550. However, the short-term outlook remains positive, despite the stock turning volatile. It finds immediate resistance at ₹357 and support at ₹315.

A conclusive close below ₹315 will change the outlook to negative and the stock may decline to ₹253. A close above the resistance will lift Tata Steel to ₹404.

F&O pointers: Tata Steel futures added 18.68 lakh shares in open interest on Friday, despite a 2.8 per cent fall in the underlying value.

This signals that traders are building positions at lower levels. The Tata Steel May futures commands a premium of over two points.

Trading in options indicates strong supports at ₹320 and ₹300. Similarly, ₹350 would act as a resistance level.

Strategy: Risk-averse traders can consider buying ₹330-call option. This is simple, where the total loss is the premium paid while the profit could be unlimited if Tata Steel makes a strong come back within this series. As the option is quoting at a premium of ₹6.75, one has to incur a total cost of ₹13,500.

Traders can consider exiting the position if the loss mounts at ₹7,500 or can book profits if the premium surges to ₹18-20/contract.

Traders with high-risk appetite can consider going long on Tata Steel futures with a stop-loss at ₹315 (spot price) and aim for a target of ₹357.

The stop-loss can be shifted to ₹322 if the counter closes above that level on Monday.

Follow-up: Despite the huge swing in the early part of the week, the stock of Reliance Capital moved on expected lines. Traders can hold the position for a week and book profits.

Published on May 15, 2016

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