Technical Analysis

Weekly trading guide: Infosys breaks below a key level

Akhil Nallamuthu | Updated on March 02, 2020

SBI (₹303)

SBI nears an important base

After consolidating during the first half of last week, the stock of SBI faced significant downward pressure in the latter half. The price could not sustain above ₹325. It closed at ₹303, below the important support of ₹310, where the 38.2 per cent Fibonacci retracement level lies. It has also fallen below both the 21- and 50-day moving averages, potentially turning the short-term trend negative.

Moreover, the daily relative strength index is now below the midpoint level of 50 and the moving average convergence divergence indicator in the daily chart is showing a fresh downtick. All these factors hint at further decline in price. But it has an immediate support at ₹298. The 50 per cent of the Fibonacci retracement level is at that level, making it a significant support.

Hence, traders can sell the stock with a stop-loss at ₹315 if the price breaks below ₹298. The support levels below ₹298 are at ₹285 and ₹273, which can be the near-term targets. Notably, ₹295.5 is the four-month low of the stock. Resistance from the current levels can be spotted at ₹310 and ₹325.

ITC (₹197.5)

ITC trades near a multi-year support

The stock of ITC continued to decline last week, extending the downtrend. By closing at ₹197.5, the stock lost nearly 16 per cent in February, its weakest monthly close since October 2008, when it lost around 17 per cent. It registered a new one-year low of ₹192.05 last Friday before closing the month at ₹197.5.

The stock thus seems to be in a bear grip, and the downtrend is likely to continue in the coming week. Corroborating the bearish outlook, the moving average convergence divergence indicator in the daily chart has further fallen into the bearish territory and the daily relative strength index (RSI) is showing a fresh downtick. But there are a couple of factors in favour of the stock.

The RSI is in the over-sold levels, and more importantly, the ₹195 level is a strong support from where the stock has bounced back on multiple occasions in the past. So, traders are recommended to initiate fresh short positions with a stop-loss at ₹210 only if the stock decisively breaks below ₹195. The support levels on the downside are at ₹183 and ₹179.

Infosys (₹731.7)

Infosys breaks below a key level

Unable to decisively break out of the critical resistance at ₹800, the stock of Infosys weakened last week. The price has slipped below the important support of ₹760 and has moved below both 21- and 50-day moving averages — a bearish indication. As the stock has broken below ₹760 — a level that coincides with the 50-day moving average and the 23.6 per cent Fibonacci retracement level of the prior upswing — the short-term outlook for the stock has turned negative.

Moreover, the daily relative strength index has fallen and is currently below the midpoint level of 50. Also, the moving average convergence divergence indicator in the daily chart is showing a fresh downtick and has inched down to the bear zone. These factors indicate that the downtrend might continue in the upcoming sessions.

Traders can thus short the stock on rallies with a stop-loss at ₹780. The immediate support is at ₹700, and at ₹690 lies the 61.8 per cent Fibonacci retracement level of the previous uptrend. Hence, the price band between ₹690 and ₹700 can be the potential short-term target.

RIL (₹1,328.6)

Outlook turns bearish for RIL

Facing the resistance of the 50-day moving average, the stock of Reliance Industries declined through the past week. It broke below the previous low at ₹1,363 last Friday, forming a fresh low of ₹1,325, before closing at ₹1,328. The stock has been forming lower peaks and lower troughs since the beginning of the year, indicating considerable bearish momentum.

Adding to the negative bias, the stock closed with a loss for a third consecutive month. The 21-day moving average remains below the 50-day moving average, re-iterating the bearish outlook. The oscillators hint at a further decline in price as the daily relative strength index is in the downward trajectory and lies below the midpoint level of 50; the moving average convergence divergence indicator in the daily chart shows a renewed bearish momentum.

Traders, rather than initiating fresh shorts at the current level, can sell with a stop-loss at ₹1,410 if the price rallies to ₹1,360. The nearest support from the current market price can be spotted at ₹1,300 and the subsequent support is at ₹1,250.

Tata Steel (₹381.7)

Tata Steel hovers around a support

The stock price of Tata Steel tumbled last week as it witnessed significant selling pressure. In the daily chart, it formed a fresh low of ₹375, breaking below ₹416.6, its prior low. As it has closed at ₹381.7, it has slipped below the support at ₹392 where the 61.8 per cent Fibonacci retracement level of the previous bull trend lies. The 21-day moving average has crossed below the 50-day moving average, turning the short-term outlook bearish.

Substantiating the weak outlook, the daily relative strength index is showing fresh downtick, and remains below the midpoint level of 50. On the other hand, the moving average convergence divergence indicator in the daily chart has moved further into the bear zone. Though the aforementioned factors indicate a clear downtrend, the stock has a considerable support at ₹380.

So, traders can go short in the stock with a stop-loss at ₹395 if the price breaches the support at ₹380. While the primary support is at ₹345, a break below that level can drag the stock to ₹325.

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Published on March 01, 2020
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