A ‘Major’ Breakdown in F&O Stock; Cracks 4%!

As the mood of the broader markets is not so good, keeping positions on the short side might have the potential to generate some decent profit in the short run. The metal space is taking a hit since the beginning of the session and currently, the Nifty Metal index is the top-most losing sectoral index for the day so far, falling 1.65% to 5,405, by 11:04 AM IST.

One constituent of the Nifty Metal index which holds a weightage of 4.61% and has delivered a breakdown on the daily chart is Jindal Steel and Power Ltd (NS: JNSP ). It is primarily in the business of producing steel, iron and power, having a market capitalization of INR 56,000 crores and currently trades at a TTM P/E ratio of only 13.26 and a dividend yield of 0.54%.

Image Description: Daily chart of Jindal Steel and Power with Bollinger Bands on top

Image Source: Investing.com

Since the beginning of 2023, the stock has been moving sideways without any clear direction. While it was moving horizontally, it started making a lower low and lower high formation on the daily chart, from February 2023. This downtrend was gradual and not sharp, however, today the stock fell 3.8% to INR 538.6 which is the lowest level this year. This breakdown below the previous swing low of INR 544, marked on 27 February 2023 is indicating the continuation of the ongoing downtrend, but probably with a higher pace now. The whole price action is also taking the form of a rounding top formation, a bearish reversal sign.

As per the next support level, the stock has to potential to fall further to INR 522 (spot) which is the next swing low, and from where some buying could be expected to kick in. More importantly, the stock also plunged below the lower band of Bollinger Bands® which is definitely not a good sign for bulls.

This is a representation of a volatility breakout, meaning, the fall could intensify from here. A fall is generally accompanied by volatility expansion, and the break below the lower band is a sign of potential volatility expansion, hence holding on to long positions might become painful in the near future.

If the stock bounces back to higher levels, that would again be an opportunity to go short on this counter, as long as the level of INR 591 is intact, which is the immediate resistance.

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