Technical Analysis

Weekly Trading Guide: Bullish bias in SBI

Akhil Nallamuthu | Updated on January 13, 2020 Published on January 12, 2020

SBI (₹332.2)

 

The stock of SBI underwent considerable volatility and broke below the lower boundary of the range between ₹325 and ₹340. The price also slipped below both the 21- and 50- day moving averages. But it rebounded sharply, recouping its loss. It closed the week above the important level of ₹325, thereby moving back into the range. Looking at the weekly chart, one can observe that the stock witnesses good buying below ₹325, indicating reasonable demand for it as the price softens. Notably, ₹325 coincides with the 23.6 per cent Fibonacci retracement level of the previous trend, making it an important level. Since the stock has rallied back above ₹325, traders can approach it with a bullish bias. It is recommended to initiate fresh long positions and place the stop-loss at ₹320. On the upside, beyond the upper boundary of the range at ₹340, the subsequent resistance is at ₹351, its previous high. A break above that level would confirm a higher peak in the daily chart, which could attract more buyers, resulting in the stock appreciating to ₹362. The supports are at ₹325 and ₹315.

ITC (₹238)

 

After briefly trading below the critical support of ₹235, the stock of ITC recovered and managed to close above it. The support at ₹235 is important for the stock because it has bounced thrice from that level since August 2019. And because the overall trend is biased towards bearish, a break below ₹235 could confirm a new downtrend. Though the moving average convergence divergence indicator in the daily chart is flat, the daily relative strength index is showing a fresh uptick. However, the price continues to remain below both 21- and 50-day moving averages. For the stock to establish a sustainable rally, it should breach the resistance at ₹241, where the 23.6 per cent Fibonacci retracement of the previous bear trend lies. But since the risk-reward ratio is favourable for long positions at current levels, traders are recommended to initiate fresh long positions on dips and place the stop-loss at ₹233. Once the price breaks out of resistance at ₹241, move the stop-loss on the upside with a gap of 1.5 times daily Average True Range. Above ₹241, the stock could appreciate to ₹245.

Infosys (₹738.1)

 

Though the stock faced downward pressure, the price action continues to exhibit bullish bias. After declining during the first part of the past week, the stock took support on the 50-day moving average at ₹710 levels and bounced back, thereby forming a higher low in the daily chart. With the weekly close at ₹738.1, the price has moved back above the important level of ₹725 and the 21-day moving average. Despite the volatility, there was not much change observed in the moving average convergence divergence indicator in the daily chart. But following the rally during the latter part of the week, the daily relative strength index shows a fresh uptick and has crossed above the midpoint level of 50 — an indication of good bullish momentum. From the perspective of trading, one can make use of the declines to initiate fresh long positions. The stop-loss can be placed at ₹720. The nearest target can be at the resistance level of ₹760. The 61.8 per cent Fibonacci retracement coincides with that price, making it an important level. On further appreciation, the stock can advance to ₹800.

RIL (₹1,547.6)

 

The stock of Reliance Industries has been consolidating for the past three weeks. The price is traversing across the key level at ₹1,534, but importantly, the stock has closed above that level for the past three weeks. Though the equity market witnessed downward pressure during last week, the price of RIL stayed flat, showing resilience — a bullish indication. Also, the stock has moved above the 50-day moving average. The daily relative strength index is flat but has gone above the midpoint level of 50. On the other hand, the moving average convergence divergence indicator in the daily chart is showing signs of recovery. The overall trend is bullish, and the uptrend is not under threat until the price stays above the support band between ₹1,500 and ₹1,510. Traders are thus recommended to buy the stock on declines with a dynamic stop-loss. While the initial stop-loss can be placed at ₹1,495, shift it upwards with a gap of 1.5 times the daily Average True Range as the stock appreciates. The stock will face a hurdle at ₹1,575. Above that level, it can retest ₹1,617.5, its lifetime high.

Tata Steel (₹486.2)

 

Tata Steel is one of the stocks that showed restraint when the equity market witnessed selling pressure early last week. This means that the prevailing uptrend has more steam and the stock can rally from the current levels. While the price remains above both the 21- and 50-day moving averages, there are certain indicators that the bull trend is not without hurdles. The daily relative strength index is at the over-bought levels and the moving average convergence divergence indicator is flat, despite bullishness exhibited by price action. And, as shown by the falling Average True Range, the trading range has been narrowing for the past few trading sessions, which can be an indication of loss in bullish momentum. Hence, fresh long positions should be accompanied by a dynamic stop-loss. Traders can initiate fresh long positions on dips, with the initial stop-loss at ₹465. As the stock rises, keep moving the stop-loss on the upside with a gap of 1.5 times the daily Average True Range. The potential targets are at ₹500 and ₹515.

Published on January 12, 2020
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