One of the dangerous thing most of the traders often encounter is looking for a breakout with strong momentum and start betting on continuation of the price movement in the direction of breakout without looking into the bigger picture.
Flexible to change is one of the biggest skill a trader have to adopt/acquire during the trading career. Often Failure to change lefts deep scar in trading balance sheet.
Metal Sector is showing similar breakout patterns if you just look from the short term perspective. Yes there is a clean breakout from the consolidation. But hey, lets look into the bigger picture. The bigger picture talks about how emotional a particular sector/stock is. To track emotions we can use gaps ( Check out last article on Nifty Metal Sector in Emotional Buyers Market ).
Since Mid of Feb 2016 NIFTY Metals had gained more than 97% returns and so far 10 gaps still left unfaded in the last 52 weeks alone which often indicates that buyers are emotional and getting crazier buying at every rallies, participating in every momentum rallies. Investing in such a environment might not be a fruitful one as we had seen similar examples in NIFTY IT sector and NIFTY Auto Sector
Monthly Sentiment remains negative despite the sector had registered a fresh 52 week high which is not a healthier sign for a medium term uptrend continuation. In such a scenario if you ask me to think about the odds, I’ll ask you what if 2 gaps out of 10 is going to get faded in NIFTY Metals? That is roughly 667 points correction or a equivalent of 22.5% correction in Nifty Metals.