1923057,1923003,1923022,1923063, 1923027 Cia-3 Sapm

Technical Analysis: Moving Average and Relative Strength Index
JSW and TATA Steel
SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

CIA-3 Report
Submitted To- Dr. Mary Metilda J
Submitted By-
1923057 Kashish Agrawal 1923003 Adarsh Verma
1923022 Mayank Kumar
1923063 Muskaan Mittal
1923027 Nulu Srinivas
TABLE OF CONTENTS
S.NO. PARTICULARS PAGE NO.
JSW Steel 3
1. About Companies
TATA Steel 3-4
2. Why these Companies? 4
3. About Indicators 4-6
4. Why these Indicators? 6
5. About Chart 7
6. Data, Data Source and Calculation 8
7. Why this Duration? 8
8. Moving Average Analysis 9-14
9. Relative Strength Index Analysis 15-17
10. Comparison between JSW and TATA Steel 17-18
11. Common Movements and Observations 18
12. Conclusion 18
A brief report on JSW and TATA Steel Stock Analysis
ABOUT COMPANIES
JSW Steel
JSW Steel Ltd., a JSW Group subsidiary, is a global steel manufacturing firm headquartered in
Mumbai, Maharashtra, India. It is one of India's fastest-growing firms, with a global presence in
more than 140 countries. JSW Steel has merged with ISPAT Steel to become India's second-
biggest private steel firm. The JSW Group, a $13 billion conglomerate with operations in India,
the United States, South America, and Africa, is a subsidiary of the O.P. Jindal Group and has a
substantial presence in core economic areas, including steel energy, infrastructure, cement,
ventures, and sports.
The Group aspires to be the best by using its strengths and skills, including a proven track record
of completing big capital-intensive and technically challenging projects, a differentiated product
mix, state-of-the-art production facilities, and a stronger focus on long-term growth.
It also places a great emphasis on social development in the communities surrounding its Plant &
Port sites. By combining its growth strategy, excellent execution capabilities, and a constant
commitment to be #BetterEveryday, JSW Group is recognized for creating value for its
stakeholders.
TATA Steel
Tata Steel Limited, owned by the Tata Group, is an Indian multinational steel-making firm based
in Jamshedpur, Jharkhand. It is headquartered in Mumbai, Maharashtra, India.
Tata Steel, originally Tata Iron and Steel Company Limited (TISCO), is one of the world's major
steelmakers, with an annual output of 34 million tonnes of crude steel. It is one of the world's
most geographically varied steel producers, with operations and commercial presence all over
the globe. On March 31, 2020, the group (excluding SEA activities) had a combined turnover of
US$19.7 billion. After Steel Authority of India Ltd, India's second-largest steel firm (measured
by domestic output) with an annual capacity of 13 million tonnes (SAIL). Tata Steel employs
over 80,500 people in 26 countries, including main activities in India, the Netherlands, and the
United Kingdom.
Their ability to assist global growth markets is based on constant development in their service
and product portfolios and success in value creation activities for clients. Their operations and
commercial presence are now spread over the globe. A Fantastic Workplace- Tata Steel and its
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subsidiaries, affiliates, and joint ventures are a CertifiedTM organization with over 65,000
employees distributed across five continents.
WHY THIS COMPANY?

JSW Steel has surpassed long-time market leader Steel Authority of India as the country's largest
steel producer. JSW Steel reported net sales of ₹52,971 crore
The top revenue spot in the domestic market is a big boost for JSW Steel, and it marks the
completion of a long-term strategy to bridge the capacity and product portfolio gap with its two
larger competitors. Through brownfield development and intelligent acquisitions, the firm has
progressively increased its manufacturing capacity in the domestic market.
In terms of profitability, JSW has much distance to cover. JSW Steel, which had a tiny 0.25
percent year-on-year drop of ₹5,967 crore.
ABOUT INDICATORS
The indicators chosen for analysis are Moving Averages and Relative Strength Index.
Simple moving average –
A simple moving average (SMA) is an arithmetic moving average calculated by adding recent
prices and then dividing that figure by the number of time periods in the calculation average. For
example, one could add the closing price of a security for a number of time periods and then
divide this total by that same number of periods. Short-term averages respond quickly to changes
in the price of the underlying security, while long-term averages are slower to react.
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Exponential moving average –

An exponential moving average (EMA) is a type of moving average (MA) that places a greater
weight and significance on the most recent data points. The exponential moving average is also
referred to as the exponentially weighted moving average. An exponentially weighted moving
average reacts more significantly to recent price changes than a simple moving average (SMA),
which applies an equal weight to all observations in the period.
Traders who employ technical analysis find moving averages very useful and insightful when
applied correctly. However, they also realize that these signals can create havoc when used
improperly or misinterpreted. All the moving averages commonly used in technical analysis are,
by their very nature, lagging indicators.
An EMA does serve to alleviate the negative impact of lags to some extent. Because the EMA
calculation places more weight on the latest data, it “hugs” the price action a bit more tightly and
reacts more quickly. This is desirable when an EMA is used to derive a trading entry signal.
Difference between EMA and SMA –
The major difference between an EMA and an SMA is the sensitivity each one shows to changes
in the data used in its calculation.
More specifically, the EMA gives higher weights to recent prices, while the SMA assigns equal
weights to all values. The two averages are similar because they are interpreted in the same
manner and are both commonly used by technical traders to smooth out price fluctuations. Since
EMAs place a higher weighting on recent data than on older data, they are more responsive
to the
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latest price changes than SMAs. That makes the results from EMAs timelier and explains why
they are preferred by many traders.
Relative strength index-
The relative strength index (RSI) is a momentum indicator used in technical analysis that
measures the magnitude of recent price changes to evaluate overbought or oversold conditions in
the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves
between two extremes) and can have a reading from 0 to 100.
Traditional interpretation and usage of the RSI are that values of 70 or above indicate that a
security is becoming overbought or overvalued and may be primed for a trend reversal or
corrective pullback in price. An RSI reading of 30 or below indicates an oversold
or undervalued condition.
WHY THESE INDICATORS?

 The SMA helps investors find out future price trends. Therefore, it helps to predict future
prices. Looking at the slope of the SMA, an individual can guess how the price will change
to make the best decision.
 EMA identifies and confirms the market trend. It also acts as a supporter and resistance
bands. EMA is a good indicator because it is sensitive to the current prices of the stock which
confirms the short term trend of where the stock is going to move.
 RSI offers easy chart analysis. Because the overbought and oversold levels of RSI are clearly
delineated, the indicator is very easy for even beginner traders to use—but still accurate and
insightful enough that veteran traders will continue to rely on it.
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ABOUT CHART
The chart chosen for the analysis is Candle Stick Chart.
A candlestick is a type of price chart used in technical analysis that displays the high, low, open,
and closing prices of a security for a specific period. It originated from Japanese rice merchants
and traders to track market prices and daily momentum hundreds of years before becoming
popularized in the United States. The wide part of the candlestick is called the "real body" and
tells investors whether the closing price was higher or lower than the opening price (black/red if
the stock closed lower, white/green if the stock closed higher).
The candlestick's shadows show the day's high and low and how they compare to the open and
close. A candlestick's shape varies based on the relationship between the day's high, low,
opening and closing prices. Candlesticks reflect the impact of investor sentiment on security
prices and are used by technical analysts to determine when to enter and exit trades.
Long white/green candlesticks indicate there is strong buying pressure; this typically indicates
price is bullish. However, they should be looked at in the context of the market structure as
opposed to individually. For example, a long white candle is likely to have more significance if it
forms at a major price support level. Long black/red candlesticks indicate there is significant
selling pressure. This suggests the price is bearish. A common bullish candlestick reversal
pattern, referred to as a hammer, forms when price moves substantially lower after the open, then
rallies to close near the high. The equivalent bearish candlestick is known as a hanging man.
These candlesticks have a similar appearance to a square lollipop, and are often used by traders
attempting to pick a top or bottom in a market.
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DATA, DATA SOURCE AND CALCULATION

Data extracted for calculation and analysis is from the daily chart of the respective stocks. The
data source was moneycontrol.com and the calculations were done on MS Excel.
The excel sheet has been attached in the submission for further reference.
WHY THIS DURATION?

The time frame from January to October 2021 is considered for the analysis. Few factors which
we took consideration for giving the best analysis with RSI, Moving Averages are primarily to
determine the entry and exit strategies to maximize the best return. The indicators have shown
the best trend patterns since the year had bullish sentiment on the steel sector in India. We also
formulated the strategies for swing trade with these technical indicators. Hence, this time frame
and duration is considered for the effective analysis of these companies.
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MOVING AVERAGE ANALYSIS

Color Code for reference in Moving Averages –
Green – EMA (50)
Pink – EMA (10)
Yellow – SMA (10)
Blue – SMA (50)
JSW Steel – (Time Period – 1st January 2021 to 31st October 2021)
Link to the chart - https://www.tradingview.com/x/KMzMKlFd
As we are aware that the primary difference between an EMA and an SMA is the sensitivity each
one shows to changes in the data used in its calculation.
SMA calculates the average of price data, while EMA gives more weight to current data. The
newest price data will impact the moving average more, with older price data having a lesser
impact. Fundamentally, this fiscal year saw a great deal of boom in the steel industry in India due
to supply chain problems due to the Covid pandemic. This made the overall outlook of all the
listed steel companies very bullish this year which seems to be consolidating at current times.
Starting from January, at the end of each month till March we see JSW Steel seeking constant
support from its moving averages around the price level of 377 to 398 showing a clear crossover
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(between 50 EMA and 50 MA) which shows us that buying was very high during that period of
time starting the uptrend in short term. Also, after having taken the support three times from its
moving averages, it’s pretty much sure a big up move is pending and that opens a buy call for us
there.
On the 10th of May JSW Steel finally makes a top and consolidates entering a downward trend
pattern which continues till the mid of July. Having made a second low top on 14 th June, it opens
our short call (Swing) tapping from 730 to 670. Target is achieved on 23rd of June. Another way
to confirm this trade is to look at the crossover of the 50 EMA and SMA which happens on the
7th of June only. This is the time when the current trend and momentum of the stock is slowed
down confirming the downward trend pattern which entered after the top of 772.
Thereafter a double bottom pattern is being formed with two consecutive lows on the same price
(666.15). This opens a good buy call for us looking at the trend we were following and also to
support this trade we will have to keep a close look on the 50EMA as the big uptrend has started
to smooth and we are on the buy side so if the current EMA stops giving support the trade can
easily go wrong. After having taken the call, we can see JSW having a good 50 EMA support
which further confirms the outcome of our trade. This particular trade can be carried out till the
time a double top is formed at 772 but to be on the safer side one exits at 734 where a new
resistance was formed giving a go risk reward ratio.
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The very fact that the moving averages with 10 days as its range becomes too difficult to find
crossovers between EMA and SMA. But having taken daily charts as our consideration, we are
focusing more on giving swing trade analysis on our selected stocks.
But as the trend in the steel sector has now considerably smoothened, we can see a major head
and shoulder pattern forming in a three-month range which has been marked in the chart. Also,
we have spotted an ascending triangle forming at the end but the very fact that it breaks once to
give out a head confirms our analysis that the stock will be going in a downwards trend in the
following because of the disruption caused in the ascending triangle which was forming in the
end.
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Tata Steel – (Time Period – 1st January 2021 to 31st October 2021)
Link to the chart - https://www.tradingview.com/x/qbgwZVhT
As the boom in steel sector took place in India, the Nifty Metal showed very high level of
correlation in how they moved causing basically all of the steel stocks to move in more or less
the same way which we have noticed in JSW and Tata Steel.
In the beginning of the time period, the second wave of the pandemic was just at bay and the
supply chains of heavy metal was not structured all around the world and the prices of steel had
started to soar up which is also reflected in the charts. On the 29th of Jan, we see that the simple
moving average (50) was broken by Tata and that same red candle was engulfed by a bullish
green candle and consequently forming a bullish harami pattern on the 10th of March giving
support to Tata and the 50-day average (both on EMA and SMA) consecutively gave support
hinting a major up move and the start of the boom which hereby opens our first buy call in Tata
Steel on the 19th of March trading session.
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Further the stock creates a wide gap between its moving averages by rising very steeply. Here, a
sensible exit would have come at the first resistance this up move created which would be around
900 – 924. Further as time goes by, we can see that the gap never reduced between the stock
price and its bigger moving averages. The next buy was signaled very soon when it also
breached its temporary resistance of 950 signaling a major up move. This particular trade needed
to be more of a short-term hold than a swing as the boom never showed any sort of resistance
until the mark of 1245. A sensible exit of the hold can be after the consolidation is confirmed by
the stock after it breaks its 10 (MA and EMA) drastically at 1110 around 20 th of May. This also
depends on the person trading and the appetite of risk one has because booking of profits and
exiting markets totally depends on person from person unless a very strict system is being
followed by one.
This small correction during the boom caused a little hiccups in the moving averages causing a
crossover. The EMA 50 went under the SMA 50 showing weakness in current times but not on a
long-term basis as the stock took strong support from the 50 SMA saying that the long-term
trend was never disturbed opening another buy for very optimistic buyers as the stock has
already risen more than 40 percent. But on the contrary, Nifty as a whole also never seemed to
stop thereby boosting more confidence in the minds of the bulls.
The rally continued further till the end of July and mid-August taking Tata Steels to a staggering
level of 1500 almost more than 100 percent of the value since the start of the time period of the
particular analysis which basically sums up how strong the boom was in the Steel sector.
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After this Bull Run smoothened to some extent, we can see two head and shoulder pattern
forming giving their trades henceforth and confirming a very strong correction in a downward
trend on daily charts. In prospect of the trades which can be initiated, we can trade the right
shoulder of each of the two patterns by being on the short side of the stocks and currently one
opportunity seems to be quite open in real time if we look at the second head and shoulder.
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RELATIVE STRENGTH INDEX ANALYSIS

JSW Steel – (Time Period – 1st January 2021 to 31st October 2021)
This graphical representation is the stock prices of daily candles of JSW Steel. The relative
strength index is the purple line below the candles. This indicator is used as an essential element
in technical analysis and is used to determine the magnitude of recent price changes to evaluate
overbought or oversold conditions in the price of a stock. In order to apprehend the conditions of
the stock, the closing prices are taken into consideration from January 2021 to October 31, 2021.
RSI can explain to us various strategies of entry and exit with regards to the pressure of buy and
sell mechanism in the market for a specific stock. The levels of 30 and 70 are zones to be aware
of. When the RSI rises above 70, the market is deemed overbought. As equities become pricier,
prices may fall. When the RSI falls below 30, the stock is considered cheap. RSI 14 is taken for
the analysis that means the comparison is from 14 days. On March 25, 2021, we see the first
arrow on the graph helps in understanding the stock is expected to change its trend after
consolidation for two months which implies the mid-range levels of RSI as the stock was
consolidating and moving sideways. That point could be an entry point because of the increase in
the pressure of buyers where it is shooting up from midrange level. As a result, the candlestick
pattern is also appearing a trend reversal with a bullish sentiment with regards to this stock. As
the stock is reaching the overbought zones, the stock is becoming much expensive. Usually,
when the stock is
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at an overbought zone, in consonance with this indicator, it signifies the pricey element of a
stock. Now when the RSI is crossing the overbought zones and heading towards 85-90 levels that
signifies the expensive stock is becoming much more expensive. So, it is essential to take the
strategy and gain that expensive margin of profits in the company. After reaching the resistance
levels, the RSI tends to consolidate and move down because of the seller’s pressure in the
market. After a great moment of price, this scrip settled down is moving sideways with not
touching any new highs. The buyers and seller pressure are also neutral as RSI indicates its
levels in the mid- range grid. The traders and investors made adequate returns from April to July
as the uptrend was seen in this period.
Tata Steel – (Time Period – 1st January 2021 to 31st October 2021)
This graphical representation is the stock prices of daily candles of Tata Steel. The Relative
Strength Index is the purple line below the candles. This indicator is used as an essential element
in technical analysis and is used to determine the magnitude of recent price changes to evaluate
overbought or oversold conditions in the price of a stock. In order to apprehend the conditions of
the stock, the closing prices are taken into consideration from January 2021 to October 31, 2021.
RSI can explain to us various strategies of entry and exit with regards to the pressure of buy and
sell mechanism in the market for a specific stock. The levels of 30 and 70 are zones to be aware
of. When the RSI rises above 70, the market is deemed overbought. As equities become pricier,
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prices may fall. When the RSI falls below 30, the stock is considered cheap. RSI 14 is taken for
the analysis that means the comparison is from 14 days. With respect to the graph, at the
beginning of the year 2021, the RSI significantly fell due to overselling of the stock and under
buying mechanism, which led to a correction in the movement of this stock. Tata Steel has
undergone a period of consolidation in the movement of sideways direction. From the month of
March, the rally has begun since there is a trend reversal towards uptrend and is recognized in
changing RSI levels mid-range to overbought levels. As per the classic RSI analysis, March 24,
2021, was the ideal time to enter this scrip. The momentum has begun after breaking the mid-
range levels, and this scrip hit new highs during this trading reign. The first week of August 2021
was the optimum sell time since RSI fell, floating at the overbought RSI level for a period of
time. Since then, the stock had undergone a trend reversal and moved in a sideways direction,
which led the stock to consolidate. On September 21, 2021, the RSI hit 30 levels as an all-time
low and signifies that stock is under bought by the buyers.
COMPARISON BETWEEN JSW AND TATA STEEL
The dark blue line in the above picture shows the corresponding movements in the stock prices
of JSW Steel when compared to Tata Steel.
JSW Steel had undergone high consolidation level than Tata Steel as its momentum lasted for a
few more trading sessions in the market. The growth momentum was slowed in the month of
June 2021 in JSW Steel, and the Tata Steel rally lasted till August 2021. JSW steel was observed
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staying
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in the overbought RSI levels for a longer period than Tata Steel. The prominent reason is the
consistency in the pressure of buyers for a longer period in the bullish market. Tata Steel reached
new highs in prices very quickly over its peer JSW Steel. The fact also remains that Tata Steel
was able to maintain huge gaps between its prices and moving averages as compared to JSW
indicating that its run was still not over when JSW had very early started consolidating.
COMMON MOVEMENTS AND OBSERVATIONS

Since both the stocks belong to the same sector, the cyclical growth of the industry and its effect
on these are almost the same. The major observation is where both the companies almost had
similar trend patterns with regard to the time span of the movement of these stocks. In the last
few months, both stocks have been in the consolidation range in the sideways market. These
stocks had mid-range RSI levels as an average in the analyzed period. Looking at how the
moving averages behaved in both the stocks, they both started their rally in the starting months
of the year with three bottom supports on their respective 50 EMA and SMA. This was pretty
common with many other stocks like Hindalco who also deal in steel. The consolidation which
starts in the steel sectors in some sort of similar movement in the respective stocks with JSW
giving a head and shoulder on a long-term basis as of how it looks on the daily charts and Tata
Steel giving two consecutive head and shoulders following the downtrend.
CONCLUSION
As a concluding note, out of all the matrixes and factors in technical analysis, the relative
strength index is the most important indicator. We understood that from March to July, both
companies in the steel sectors surged in terms of their share price, breaking out of the overbought
zone by end of Quarter 2. This was the strongest trading session for JSW and TATA steel with
entry and exit strategies. Due to the industry being same and the level of business of JSW and
TATA Steel. They both can we used as a a share index for each other as they have similar
movements.
Looking upon the EMA and SMA analysis, we got to know that currently the steel sector stocks
have started consolidating and have ended their nice run which lasted for about more than six
months. There were a few crossovers between the averages hinting us with the exit strategies of
how the trades during those scenarios could have been planned. Other than that, the smaller
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moving averages stuck to the price line for most of the times due to the time frame selected
(Daily charts).
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Technical Analysis: Moving Average and Relative Strength Index

JSW and TATA Steel

SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT

WHY THIS COMPANY?

Exponential moving average –

WHY THESE INDICATORS?

DATA, DATA SOURCE AND CALCULATION

WHY THIS DURATION?

MOVING AVERAGE ANALYSIS

RELATIVE STRENGTH INDEX ANALYSIS

COMPARISON BETWEEN JSW AND TATA STEEL

COMMON MOVEMENTS AND OBSERVATIONS

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