You Cannot Ignore This
- Rohit Musale, CFA
- Jan 8
- 3 min read
This is a daily timeframe chart of Jindal Stainless.
From the start of September 2025 towards the middle of October, the stock was forming a base.
This was base number 1B within a confirmed stage 2 uptrend.
The reason why I say confirmed stage 2 uptrend is because by the time mid-October came, we had,
Price > 50 DSMA > 150 DSMA > 200 DSMA
With a red arrow mark, I have pointed the pivot point here.
In this case, it was 818.95.
That’s the weekly buy point as per the Marketsmith chart.
If you notice inside the base, I have shown on the chart how the relative strength line has been declining.
The relative strength line is the blue line that you see on this chart.
Throughout the base, it was declining.
I have shown that with a red arrow.
During this base formation, the relative strength rating of the stock was in the 80s.
As per William O’Neil’s CANSLIM system, any stock with a relative strength rating of 80 or more is considered to be eligible for further investigation.
However, in this case, you notice a declining relative strength line.
This simply means that during this base formation period, the Nifty 50 was performing better than the stock itself.
That’s a negative technical sign.
Somewhere towards the third or fourth week of October, the stock tried to break out of that pivot point of 818.95 rupees.
But it immediately collapsed within four days to hit the stop loss of 5 to 8%.
I have marked this price movement with a red color vertical rectangle.
The point I am trying to make in this post is that:
You cannot ignore the slope of the relative strength line.
Even if the relative strength rating is in your favor, please keep an eye on the relative strength line.
Another point is:
Just because it is an early stage base does not mean that the stock will go up.
The stock could continue to form multiple sub-bases within a base within a confirmed stage 2 uptrend.
For example, the stock instead of forming base 2 after base 1 could go on to form base 1a, base 1b, base 1c.
These are sub-bases within a full base.
Even a basic or elementary understanding of the relative strength line and base-on-base formations could have easily kept you away from this loss.
Hence I say that, stock selection, stock rejection, and trading are learnable skills.
You just have to look at a few things on the chart correctly to understand whether the stock is worth your time, money, attention, and ideas.
Just because Marketsmith draws a base on the chart does not mean that you have to enter the stock.
You have to use your own independent judgment and analysis before you make a commitment.
And this is only the technical aspect of trading.
I have not even discussed the other aspects.
For example, I do 5 kinds of analysis when I look at a stock:
1 - Liquidity
2- Comparative
3 - Technical
4 - Fundamental
5 - Market
In technical analysis itself, the stock fails.
So why would I spend time doing the other kinds of analysis?
Even if it passes the technicals, even if the stock had a rising relative strength line, that does not mean that I am going to buy the stock.
I would look at the other factors before I make a decision.
The more the confirmations we have, the higher is the probability of success.
The more the risk factors that pile up, the lower is the probability of success, or the higher is the probability that your stop loss will get hit.
This chart of Jindal Stainless is a very good example of that.
Regards,
Rohit Musale, CFA
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