Technical Analysis

Weekly trading guide: Bearish bias in SBI

Akhil Nallamuthu | Updated on December 09, 2019 Published on December 08, 2019

SBI (Rs 320)

The resistance band between ₹347 and ₹351 in the weekly chart proved strong for the stock of SBI, making it witness selling pressure last week. It breached an important support at ₹335, and the outlook has become weak. The daily relative strength index has dipped below the midpoint level of 50 and the moving average convergence divergence indicator has entered negative region, both corroborating the weakness. However, ₹320 is a good support and there are chances for the stock to consolidate between ₹320 and ₹340. But if the stock continues to face selling pressure and breaks below ₹320, it has a minor support at ₹315. Hence, the price range between ₹315 and ₹320 will act as a support band. Below those levels, it has a solid support at ₹298. This level coincides with the 50-day moving average and 50 per cent Fibonacci retracement level of the previous uptrend. Alternatively, if the stock takes support at the current levels and appreciates, it will face a hurdle at ₹335, beyond which the stock has a resistance band between ₹347 and ₹351.

 

ITC tests a key support

ITC (Rs 243.3)

After inching below a support at ₹245, the stock of ITC bounced from ₹242. But it was unable to build a rally, and the price action suggests a bearish bias. However, the stock managed to hold on to the support at ₹242. On the upside, ₹250 is a key resistance, and for the stock to chart a sustainable rally, it must break out of ₹250. Thus, the price levels of ₹242 and ₹250 hold the key for the next leg of the trend. As we can notice, there are certain hints that indicate a bearish bias. The 21-day moving average has crossed below the 50-day moving average, the daily relative strength index remains below the midpoint level of 50 and the moving convergence divergence indicator is in the negative territory. But fresh short positions are advised only if the stock slips above ₹242. In such a scenario, the stock can fall to ₹234 — its 52-week low. Below that, the stock could attract more bears, dragging the price to ₹223 over the medium term. On the other hand, if the stock rises from the current level, it will face resistance at ₹250 and ₹258.

 

Infosys consolidates with a positive bias

Infosys (Rs 715.1)

Though the stock of Infosys closed the week on a positive note, it continues to oscillate within the range between ₹690 and ₹725. The consolidation phase has been in place since the beginning of November. But there are certain factors that indicate creation of positive momentum in the stock. The daily relative strength index is showing an uptick and has crossed above the midpoint level of 50. Also, the moving average convergence divergence indicator is recovering and has already entered the positive territory. But unless the stock breaks out of the upper limit of the range, ie, ₹725, where the 50-day moving average lies, the bullish trend cannot be confirmed. If the stock breaks out of that level, it can advance to the resistance at ₹760. This is a critical level as the 61.8 per cent Fibonacci retracement of the previous bear trend coincides with it. Any further appreciation will take the stock price to ₹800. Alternatively, if the stock breaks below the lower limit of the range, it could slump to ₹665, below which the support is at ₹620.

 

RIL might move into sideways trend

RIL (Rs 1,554.9)

The stock of Reliance Industries opened the week on a positive note and registered a fresh lifetime high of ₹1,614.45. But the price reversed immediately and the stock started to moderate. It took support at ₹1,534 levels last week before closing at ₹1,554.9. Thus, ₹1,534 is acting as a good base, and until the stock trades above it, the bullish bias will remain. However, the upward momentum appears to be losing steam as one can observe a few indications of weakness. This might also result in a prolonged period of consolidation as the stock might be caught between the bulls and the bears. The daily relative strength index is showing a bearish divergence, an indication of a trend- reversal. The moving average convergence divergence indicator has slipped into the negative territory. On the back of these, if the stock breaks below the support at ₹1,534, it will most likely decline to ₹1,500. Below that, the medium-term trend of the stock could turn negative. However, if the stock rebounds, it can be expected to retest its lifetime high. Beyond that level, ₹1,665 can act as a resistance.

 

Tata Steel faces downward pressure

Tata Steel (Rs 403.2)

The stock of Tata Steel could not continue its rally after the breakout and weakened during the past week. It has closed below the 21-day moving average, a bearish indication. But the stock has a support band between ₹395 and ₹400 that can effectively limit the decline. The 38.2 per cent Fibonacci retracement level of the previous trend coincides with ₹395, making the support more significant. The daily relative strength index is exhibiting a bearish divergence and the moving average convergence divergence indicator has slipped into the negative territory, indicating that the stock is facing a downward pressure, and so if it breaks below the support band, it will decline to ₹380. This level coincides with the 50-day moving average and the 50 per cent Fibonacci retracement level. Hence, it can act as a strong support, below which the support is at ₹360. On the other hand, if the stock regains bullish momentum and advances, ₹415 will be a resistance. Beyond that level, the recent high at ₹434 might cap the gain.

 

Published on December 08, 2019
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