Technical Analysis

Weekly Trading Guide

Gurumurthy K | Updated on May 12, 2019 Published on May 12, 2019

Resistance may cap upside in SBI

SBI (₹308.05)

SBI tumbled over 5 per cent intra-week, breaking below the key support level of ₹302. However, it clawed back from the low of ₹292.2, recovering almost all the loss after the fourth-quarter results announcement on Friday. Though the weekly candle gives a mixed signal, the daily chart is relatively positive. A key support is at ₹302, which can limit the downside; resistance is at ₹313. A strong break above it can take the stock higher to ₹321-322. A pull-back from ₹322 can trigger a corrective fall to ₹312. But a strong break above ₹322 will increase the likelihood of the stock rallying to ₹330-335. Given the weakness in the broader markets, such a strong rally looks less probable. So the upside is likely to be limited to ₹322 at the moment. On the other hand, if SBI fails to breach the immediate resistance level of ₹313, a fall to ₹302 or even ₹297 is possible. As such, the impact of Friday's results will be short-lived and the overall negative sentiment in the market could weigh on the stock. In that case, SBI can fall to ₹ 290 and ₹287.

Uptrend in ITC under threat

ITC (₹297.7)

ITC moved up in the initial part of the week but failed to sustain higher. The uptrend that has been in place since late February seems to be under threat. A key support is at ₹295 which is likely to be tested in the near term. The stock has to hold above this support in order to keep the sentiment positive. A break below ₹295 can drag the stock initially lower to ₹288-287. A further break below ₹287 will then increase the likelihood of the stock tumbling towards ₹280-278. Such a fall to ₹280-278 will be a good buying opportunity from a long-term perspective. Investors with a long-term perspective can take long positions at ₹285 and accumulate at ₹282 and ₹278. On the other hand, if ITC manages to sustain above ₹295 in the coming days, a bounce to ₹302 — the crucial 21-day moving average resistance — is possible. The stock has to surpass this hurdle to bring back the bullish momentum. Else, a pull-back to ₹295 is possible again. In that case, ITC can remain range-bound between ₹295 and ₹302 for some time.

Infosys can witness a fresh fall

Infosys (₹716.05)

Infosys has crucial supports in the ₹706-703 region, which can be tested in the near term. It’s ability to sustain above this support zone will decide its next move. A bounce from the ₹706-703 support region will ease the downside pressure. It will increase the possibility of the stock moving higher to ₹730-735 in the short term. It will also keep the broader ₹700-775 sideways range intact. Infosys has been trading in this range since mid-January. But if the stock breaks below ₹703 in the coming days, it will come under renewed pressure. Such a break will take the stock initially lower to ₹690-685. A further break below ₹685 will then increase the likelihood of the stock tumbling towards ₹670-665 on profit-booking. Indicators on the chart favour a decline below ₹703 and a fall to ₹670-665 in the coming weeks. However, the region between ₹670 and ₹665 is a crucial long-term support, which may halt the fall. A decisive bounce from the ₹670-665 support zone could be a good buying opportunity from a long-term perspective.

Outlook turns bearish for RIL

RIL (₹1,250.5)

Contrary to an expectation of a rise, RIL tumbled 11 per cent last week. Morgan Stanley, a global brokerage firm, downgrading the stock seems to have made investors book profits, triggering this sharp sell-off. The uptrend that has been in place since October 2018 has reversed, and the outlook has turned bearish. Though there is some support near the current levels, the broader picture is negative. So, any bounce from the current levels may be short-lived and could be restricted to ₹1,300-1,320. A further fall to ₹1,200-1,180 is possible in the coming days. The region around ₹1,180 is a strong long-term trend support which can halt the fall. A bounce from there will be bullish from a long-term perspective. Investors can start buying RIL at ₹1,200 and also accumulate at ₹1,285 and ₹1,295. However, the possibility of a prolonged sideways move between ₹1,180 and ₹1,300 cannot be ruled out after this fall. As such, the rally to fresh highs thereafter might take time. So, investors buying around ₹1,200 will need to be patient and hold the stock for a long period of time.

Down-move to extend in Tata Steel

Tata Steel (₹487.3)

Tata Steel tumbled 11 per cent last week. Reports that the company’s joint venture with German steel maker Thyssenkrupp may not go through was a major trigger for the sell-off in the stock last week. The resistance at ₹560 has held well. It also keeps intact the downtrend that has been in place since January 2018. A strong resistance is in the ₹505-510 region which can cap the upside. A rally beyond ₹510 looks unlikely now. Also, an intermediate bounce to this resistance zone is likely to find fresh sellers coming into the market. A fall to ₹455-450 or even ₹440 is likely in the coming days. A further break below ₹440 will then increase the likelihood of the fall extending to ₹425 or even ₹400. Traders with a short-term perspective can make use of rallies to go short at ₹498 and ₹505. Stop-loss can be placed at ₹522 for the target of ₹455. Revise the stop-loss lower to ₹490 as soon as the stock moves down to ₹475.

The writer is Chief Research Analyst at Kshitij Consultancy Services

Published on May 12, 2019

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