Technical Analysis

Weekly trading guide: Bulls charge ahead in RIL

Akhil Nallamuthu | Updated on September 13, 2020 Published on September 13, 2020

SBI (₹202.7)

While the stock of SBI closed last week without any significant change compared with the week before, it witnessed considerable volatility during last week. After beginning on a neutral note last Monday, the stock declined and made an intra-week low of ₹192.5 on Wednesday.

But on the back of the support offered by the 50-day moving average, the scrip recovered and wrapped up the week at ₹202.7. Since the stock manages to trade above the 21- and 50-day moving averages, the bias is bullish, and this is supported by the daily relative strength index which saw a fresh uptick towards the end of the week. The indicator is now hovering in the neutral region.

The moving average convergence divergence indicator has been on a downward slope since last week, but the decline currently shows lack of momentum. Even though the stock has not confirmed bearish reversal, a recovery depends on how the bulls respond from here.

Traders can go long on the stock with a stop-loss at ₹190 if it breaks out of the resistance at ₹206. Above ₹206, it can rally to ₹218 and ₹225.

ITC (₹183.9)

The stock of ITC has been trading with a bearish bias for the past two weeks, wherein it breached a support at ₹192 and is now hovering at a support of ₹181. A break below this level can bring in more selling interests.

Substantiating the bearish view, the price is well below the 21- and 50-day moving averages and the daily relative strength index has been on a steady decline and, notably, remains in the bearish territory. Also, the moving average convergence divergence indicator on the daily chart has been tracing a downward trajectory and stays in the negative region.

So, the price action and other conditions are in favour of bears. However, ₹181 can be a support; the 38.2 per cent Fibonacci retracement level of the prior rally lies at that level, making it an important base. Considering the above factors, traders can short the stock if the price slips below the support of ₹181.

On the downside, the price could drop to the immediate support at ₹174. The subsequent support can be spotted at ₹166; stop-loss can be placed at ₹192.

Infosys (₹945.7)

Though the stock of Infosys closed higher than the preceding week’s close of ₹919.1, the scrip largely remains within the price band between ₹914 and ₹950.

The price level of ₹914 is a strong support as the 23.6 per cent Fibonacci retracement level and the 50-day moving average coincide here. Also, just below this level is the important level of ₹900. Hence, the price area between ₹900 and ₹914 is a key base for the stock.

The indicators that were hinting at a weakness in the stock is now showing evidence of recovery — the daily relative strength index, which was pointing downwards, is now showing a fresh uptick and has crossed over the midpoint level of 50. Likewise, the moving average convergence divergence indicator, which was in a downward path, is now attempting to make a U-turn and, notably, remains in the positive zone.

Hence, traders can be bullish on the stock. But since ₹950 is a resistance, buy if it rallies above the resistance of ₹950 and place a stop-loss at ₹900. Above ₹950, the stock is likely to touch ₹1,000.

RIL (₹2,319.7)

The stock of Reliance Industries, which was oscillating in a sideways trend in the band between ₹2,070 and ₹2,155, broke out of the range with huge volume last Thursday, opening the door for further strengthening.

The scrip, that began the week on a neutral tone, gained strong momentum mid-week and rallied sharply to breach the resistances at ₹2,155 and ₹2,200, and then registered a lifetime high of ₹2,344.9 on Thursday, before ending the session at ₹2,319.7. The fresh breakout, after consolidating for over a month, has made the case stronger of the bulls.

Corroborating the positive outlook, the moving average convergence divergence indicator on the daily chart has now turned the trajectory upwards and lies in the bullish territory. The daily relative strength index is indicating good momentum as it rises in tandem with the stock.

Considering the above factors, traders can initiate fresh long positions on declines with a stop-loss at ₹2,200. On the upside, the stock is likely to advance to ₹2,400. Beyond that level, it can appreciate to ₹2,500.

Tata Steel (₹407.5)

The stock of Tata Steel, which has been on a strong uptrend since June, is struggling to move beyond the resistance at ₹440, resulting in it softening to the current level of ₹407. Though the price has moved downwards in the past two weeks, the stock remains above the crucial support of ₹400, showing that the bulls have not given way.

However, there are clear signs of weakness; the daily relative strength index is heading southwards and has moved below the midpoint level of 50. The moving average convergence divergence indicator on the daily chart is now tracing a downward trajectory.

Nevertheless, a downtrend cannot be confirmed as long as the stock stays above ₹400. In fact, the stock should move out of the price range between ₹400 and ₹440 to get an indication about the next leg of trend. Until then, traders can adopt a range-trading strategy.

If the stock breaches the support of ₹400, it could depreciate to ₹375. Below this level, it can fall to ₹350. But if the stock breaks out of ₹440, it might rally to ₹465.

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Published on September 13, 2020
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