20th August 2014

LONG TATA STEEL EQ – System 2

Big Picture

• Tata Steel has below average volatility thereby making the market condition as “quiet sideways”.

• Based on Prior Swing (574-525) the 50% retracement is 550.

• Relative strength analysis hints at underperformance of Nifty vs Tata SteelEQ

Intraday Fundamentals

• Tata Steel Ltd has bought 100,000 tonnes of iron ore from NMDC Ltd in the last two months and also sought a long-term supply tie-up with the state-run miner in the backdrop of its captive mine in Odisha remaining shut owing to regulatory and legal action and the commissioning deadline of end-fiscal year 2015 (FY15) for its new plant drawing near.

• “The cost at which the non-captive ore is coming will be unbearable for Tata Steel,” said Prakash Duvvuri, head of research at metal and mining information and data website OreTeam. “On per tonne basis, the profit margin could get squeezed by 25-30% easily.” “Delay in commissioning Odisha project would be a risk to earnings,” said the report.

• Hold Tata Steel; target of Rs 561: Arihant capital markets

Trade Management

• I scaled in via multiple bids giving me an average price of 544.95 with a initial stop of 541.

• I scaled out of my positions between 548.2 till 551.4 giving me an average of 550.2 , the 50% of the retracement of previous swing co-incided with my average sell price.

Intuition

• Maybe – Not sure.

Review

• I did a great job in identifying the opportunity. • I did a great job by putting in my SL orders in the system to manage

initial and trailing risk. • I moved my stop beyond break-even to enter into a “riskless”

situation. • I could have made my position bigger in the consolidation between

549-546 with a closer stop. • Sub consciously my mind drifted to the news flow I had read during

the day and I decided to over-ride “System 2” by reducing my exposure.

• It was a bad decision to take off the full position as it involved breaking my rules. I should rather reduce exposure by only 50% and follow the system. My intuition has mostly been wrong in the past and this time although it was lucky.