Technical Analysis

Tech query: BSE tests a crucial resistance zone

Yoganand D | Updated on December 26, 2020

I have purchased the stock of BSE at ₹525. Is it advisable to hold for the long term or exit?

Selvam Karthik

BSE (₹616.1): The stock of BSE encountered a key resistance in the band between ₹1,175 and ₹1,200 in July 2017 and had been on a long-term downtrend until it recorded a new low at ₹275 in late March 2020. Subsequently, it reversed direction and has been on an intermediate-term uptrend.

On the weekly chart, the stock formed an inverse head-and-shoulders pattern spanning from September 2019 to December 2020, with a neckline at ₹570. An inverse head-and-shoulders pattern is a bullish reversal pattern that reverses the previous downtrend. In the first week of December, the stock jumped 7 per cent accompanied by extraordinary weekly volume, breaking above the pattern neckline at ₹570.

However, the stock now tests a long-term resistance between ₹620 and ₹640. An emphatic breakthrough of this resistance will pave the way for the pattern price target of ₹860 in the medium to long term. Key medium-term resistances are placed at ₹740 and ₹800. Significant resistances above ₹860 are at ₹900 and ₹1,000.

On the downside, a decisive fall below the key base level of ₹570 can pull the stock down to the next crucial support level of ₹490 over the medium term. A conclusive fall below the key base level of ₹490 will mitigate the pattern and drag the stock down to ₹400.

You can remain invested for the long term with a trailing stop-loss initially kept at ₹570 and consider booking partial profit if the stock struggles to move beyond ₹800 levels.

I have purchased Jindal Steel & Power at ₹260. What is the short-, medium- as well as long-term outlook?

Roshan

Jindal Steel & Power (₹259.2): Following a sharp fall in February and March 2020, the stock of Jindal Steel & Power registered a 52-week low at ₹62 in late March and started to trend upwards. Since then, it has been on an intermediate-term uptrend.

The medium-term trend is also up for the stock. In late November, the stock decisively breached a key medium-term resistance at ₹240 and extended the rally. But then, it encountered a resistance at ₹280 last week and started to decline. The stock slumped 4.7 per cent last week.

The weekly relative strength index is displaying negative divergence, implying a trend-reversal. An emphatic plunge below the key support at ₹240 will confirm the trend-reversal and drag the stock down to ₹225 and then to ₹200 over the medium term. Further decline below ₹200 will alter the medium-term uptrend and pull the stock down to ₹175 and then to ₹160 levels.

Investors with a long-term perspective can stay invested with a stop-loss at ₹130. A conclusive break-out of the long-term resistance level of ₹280 will strengthen the uptrend and take the stock northwards to ₹320 and then to ₹340 over the long run. The resistance above ₹340 is at ₹400.

Send your queries to techtrail@thehindu.co.in

Published on December 26, 2020

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