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Chart Advisor

1/ Moving from Tech to Biotech

2/ Commodities Looking for Attention

3/ German Industrial Stock on Radar

4/ Nifty Realty Changing Gears

5/ Tata Motors Leading Auto Stocks

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Moving from Tech to Biotech

Healthcare broke out from a two and half year sideways trading range early this month. Healthcare comprises multiple sub groups: Biotechnology, Medical Equipment, Medical Supplies, Pharmaceuticals, and Health Care Providers. So far we saw participation coming through Pharmaceuticals and Medical Supplies.

We now have a breakout come through in Biotechnology as well. This is textbook- style sector rotation followed by broadening sectoral participation.

The price is breaking out of a big base breakout, greater than two years. We can see multiple attempts made by this sub-group to break out above the resistance zone. The more times a level is tested, the more likely it is to break! From the ETF perspective the next zone of resistance to track comes in at 120.

Commodities Looking for Attention

When identifying which asset class to remain overweight, it is necessary to do a relative strength analysis. Here, we’re looking at Commodities in the numerator and Stocks in the denominator. If this ratio moves higher, commodities are outperforming, and vice versa.

The more important concept to focus upon here is divergence. This seems like a great example to allude to what follows after a divergence. In mid 2022, the ratio made a higher high, but the indicator (14-period RSI) marked a lower high. This was a change in momentum that led to the change in a trend that witnessed commodities passing on the momentum baton to stocks. In mid-July, however, a positive divergence occurs. A lower low in price is accompanied by a higher low in the indicator. What followed was a nice rebound in commodity strength. Although the longer-term trend remains the same with stocks outperforming commodities, the short-term story could change. With the latest data in place, while price made a lower low, the indicator made a higher low. Could this signal a short-term outperformance coming through in commodities? It is possible!

German Industrial Stock on Radar

We spoke of DAX 40 making new all-time highs and how a majority (21.16%) comprise industrials. So I did a little digging to see if there was some steam left in the industrial stocks that are driving this market higher.

Turns out, there is. Traton Group is actually a subsidiary of the Volkswagen Group and is a truck and transport services industry, one of the world’s largest commercial vehicle manufacturers. The stock price seems to have broken out of a large two-and-a-half years, as it moved past 24.50. With bullish momentum readings in the indicator and positive market momentum, the next zone of resistance comes close to 28.

Nifty Realty Changing Gears

Nifty Realty has been making big strides since its breakout in September 2023. Here is a relative strength chart of Nifty Realty compared to Nifty 500 (the broader market index). Although on an absolute basis Realty has been covering ground, the relative strength ratio has only now peeped out of the ground. Moreover, the overbought reading in the indicator suggests that this strength is here to stay, with more stocks participating in this move going forward. This is a massive 13-year base breakout and it will be important to note if the ratio can hold on to it on a weekly closing basis, but for now, Nifty Realty continues to give the green signal.

Tata Motors Leading Auto Stocks

Tata Motors, a leading Automobile company belonging to the Tata Conglomerate has been generating strong returns for investors as Auto stocks continue to rally.

In this chart, we can see that a robust price move has formed a flag-pattern. The stock is not breaking out of this move, which is typically followed by a swift movement towards the target.

As Nifty auto continues to display absolute and relative strength, Tata Motors is ready to move higher towards 1120. I once heard an analyst refer to new price territory as purple skies, and that stuck with me. So here we have Tata Motors in purple sky territory!

About This Week's Author

Rashmi Bhatnagar, CMT is a Market Technician at All Star Charts India. Previously, she was an Equity Research Analyst at Enrich Investments in Hyderabad, India. She received her charter in February 2020 and has been a part of the financial markets since 2016.

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