Technical Analysis

Weekly trading call: Infosys extends recent uptrend

Akhil Nallamuthu | Updated on January 26, 2020 Published on January 26, 2020

SBI bounces off a strong support

SBI (₹324)

 

The price action of the SBI stock remained sluggish and the attempt to recover towards the end of last week was capped by a resistance at ₹325. Since both the 21- and 50-day moving averages lie at that price level, the resistance seems to be solid.

Likewise, on the downside, ₹310 has been acting as a considerable support. Notably, the price has bounced back thrice from that level since last December. Also, we can observe in the daily chart that the price is held between ₹310 and ₹340. Hence, unless the stock breaches either of those levels, it cannot be expected to establish a definite trend.

The daily relative strength index shows an uptick, but it stays below the midpoint level of 50. So, it is advised to stay on the sidelines, as the current market price is in the middle of two important levels, making the risk-reward unfavourable. Since the trend prior to the current sideways trend was bullish, one can approach the stock with a bullish bias.

However, rather than buying at current levels, initiate fresh long positions if the price moderates to ₹310 with a tight stop-loss. The targets can be at ₹325 and ₹340.

 

ITC faces downward pressure

ITC (₹238.1)

The stock of ITC faced the 50-day moving average resistance at ₹243 levels and declined throughout the past week. The price has also slipped below the 21-day moving average.

Thus, the stock remains within the important levels of ₹235 and ₹242. The daily relative strength index is showing a fresh downtick and has gone below the midpoint level of 50, a bearish indication. Also, the moving average convergence divergence indicator in the daily chart exhibits weakness.

Though there are indications of a further decline, ₹235 is a substantial support. The price has bounced back four times from that level since August 2019. So, the possibility of the stock slipping below that level is low; hence, short positions are not recommended at current levels.

From the trading perspective, it can be approached in two ways. Either initiate fresh buy positions with a tight stop-loss if the stock falls to ₹235 or wait for the stock to decisively break out of ₹242. If the stock closes above that level, go long and place a stop-loss at ₹238.

The resistance levels above ₹242 are at ₹247 and ₹252.

 

Infosys extends recent uptrend

Infosys (₹782.7)

The stock of Infosys continues to be on a good wicket, as it has gained for the second consecutive week. As the stock price sustains above the key level of ₹760, the stock is expected to advance further. The medium-term bullish trend continues to be intact as the stock remains above both the 21- and 50-day moving averages.

The daily relative strength index, despite its fresh uptick, has not formed a new high. However, appreciation cannot be ruled out since it has not entered the over-bought territory. Corroborating the bullish view is the moving average convergence divergence indicator, which has moved further into the positive region in the daily chart, a bullish indication.

As the recent trend is on the upside and there are no signs of reversal, traders can continue to take a bullish view on the stock. One can buy on declines with a dynamic stop-loss.

While the initial stop-loss can be at ₹752, shift it upwards with a gap of 1.5 times the daily Average True Range as the stock registers new highs.

On the upside, the immediate resistance is at the round number ₹800. Above that level, the resistance is at ₹818.

 

RIL declines from a resistance

RIL (₹1,521.5)

Reliance Industries, after opening the week on a front foot, was unable to carry the bullish momentum, and declined. However, it managed to stay above the crucial support at ₹1,500. Hence, the stock continues to stay between ₹1,500 and ₹1,615; unless the stock breaches either of those levels, the next leg of the trend cannot be confirmed.

The moving average convergence divergence indicator in the daily chart have been flat for two consecutive weeks, unable to hint a direction. But since the trend prior to the consolidation was bullish and the stock is trading above the important level of ₹1,500, one can take a bullish view.

Also, the 23.6 per cent Fibonacci retracement level lies at ₹1,512, and so the price area between ₹1,500 and ₹1,512 will act as a good support band. Traders are thus recommended to buy the stock with a dynamic stop-loss.

While the initial stop-loss can be placed at ₹1,490, move it on the upside with a gap of 1.5 times the daily Average True Range as the stock advances.

The nearest target can be at ₹1,575. Above that level, the stock can retest its lifetime high at ₹1,617.5.

 

Tata Steel witnesses a correction

Tata Steel (₹483.4)

The stock of Tata Steel softened last week after it faced a resistance at ₹500. The resistance is significant, as it coincides with the 50 per cent Fibonacci retracement level of the downtrend that extended between early 2018 and late 2019.

On taking a broader view, the recent price correction only seems to be a pullback, and the stock will likely appreciate from the current levels. Also, until the support at ₹460 stays valid, the bullish trend may not be under threat. However, it is not without hurdles.

The moving average convergence divergence indicator in the daily chart is exhibiting a loss in the upward momentum and the daily relative strength index has declined sharply. However, it stays above the midpoint level of 50.

From the trading perspective, one can take a bullish view as the price remains above ₹460 and the stock has been in a bullish trend since October 2019. Traders can buy the stock on declines with a stop-loss at ₹460.

On the upside, the primary target can be at ₹500. If the stock breaches that level, it can rally to ₹515.

Published on January 26, 2020
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