Technical Analysis

Weekly Trading Guide: Infosys breaks out of the range

Akhil Nallamuthu | Updated on December 22, 2019 Published on December 22, 2019

SBI (₹337.8)

The resumption of the bull trend looks evident as SBI closed the week above the resistance band between ₹332 and ₹335. The stock began the week on the back foot, slipping to the support level of ₹325. This support also coincides with the 23.6 per cent Fibonacci retracement level of the previous bull trend. The stock took support at this level and began to rally. The bullish stance is corroborated by key oscillators. The relative strength index in the daily chart shows a fresh uptick following the rally in price.

 

 

Also, the moving average convergence divergence indicator is on the verge of entering the positive territory. Thus, traders can continue to take a bullish view and initiate long positions on corrections. The initial stop-loss can be placed at ₹320 and subsequently revised upwards by 1.5 times the daily ATR (Average True Range) as the stock moves upward. The immediate resistance is currently at ₹351 currently — its previous high. The subsequent resistance is at ₹362.

ITC (₹241.1)

The prevailing bear trend, which has been in place since the beginning of November, appears to be limiting the upside in the stock. The stock of ITC gave up its entire intra-week gains. In the past week, after breaking out of the resistance at ₹243, the stock faced resistance at ₹247.5, and started to decline from that level. This level coincides with the 38.2 Fibonacci retracement level of the previous downtrend, making it a significant resistance.

 

 

However, fresh short positions are not recommended at the current levels even though the stock is trading with a bearish bias, as the risk-reward ratio is not favourable. Importantly, the moving average convergence divergence indicator in the daily chart shows signs of recovery as it has moved into the positive region. Moreover, the price level of ₹235 is a strong support. Hence, unless the stock breaks either ₹235 or ₹247.5, the trend will be unclear. Until then, traders can adopt a range- trading strategy. The resistance above ₹247.5 is at ₹252; the support below ₹235 is at ₹228.

Infosys (₹731.5)

After consolidating since the beginning of November, the stock of Infosys moved out of the range between ₹690 and ₹725. It rallied past the upper boundary of the range at ₹725 and closed the week at 731.5, confirming the breakout. Thus, the medium- term outlook for the stock has become bullish. Adding to the positive bias, the daily relative strength index has formed a new high, following the breakout. Also, the moving average convergence divergence in the daily chart is exhibiting bullish bias.

 

 

 

The 21- and 50-DMAs are currently at the same level, ie, ₹710, and the stock is trading well above that level — another positive indication. From the perspective of trading, one can initiate fresh long positions on dips with a dynamic stop-loss. While the initial stop- loss can be placed at ₹700, move it upwards by 1.5 times the daily ATR (Average True Range) as the stock advances. The primary target can be at the resistance level of ₹760 — the 61.8 per cent Fibonacci retracement level. On further appreciation, the stock can rise to ₹800.

RIL (₹1,599.1)

The stock of Reliance Industries (RIL), which has been in an uptrend since August, has been consolidating within a range for the past month. But recently, it bounced from the 21-day moving average and registered a fresh lifetime high of ₹1,617.55. Thus, the bull trend seems to be gaining traction after the pause. But it should be noted that, despite making new highs, the relative strength index (RSI) and the moving average convergence divergence indicator are showing a lack of momentum. In fact, we can spot a bearish divergence in the RSI, hinting at the possibility of a trend- reversal.

 

 

 

However, the stock has a solid base at ₹1,534, and unless the price breaks below it, the trend-reversal cannot be confirmed. Also, the 21-day moving average is acting as a reasonable support. So, traders can be cautiously bullish and buy the stock on declines. Place a trailing stop-loss at ₹1,550 and raise it by 1.5 times the daily ATR (Average True Range) as the stock appreciates. The short-term targets are at ₹1,665 and ₹1,700.

Tata Steel (₹461)

Extending the bull run, the stock of Tata Steel surged last week. It breached a crucial resistance at ₹434. Thus, it has formed a new peak in the daily chart, denoting a good upward momentum. Substantiating the bullish bias, the moving average convergence divergence indicator in the daily chart continues to advance, implying considerable strength in the uptrend.

 

 

 

 

However, while the bull trend is backed by several factors, it may not be favourable to buy the stock at the current levels as ₹460 is a crucial resistance. Also, the 61.8 per cent Fibonacci retracement level is at ₹470. So, the price band between ₹460 and ₹470 might act as a resistance band, where the stock can witness some profit- booking. From a trading perspective, it can be approached in two ways. Either initiate fresh long positions on a close above ₹470 with the stop-loss at ₹445 or buy the stock if the price moderates to ₹440 with the stop- loss at ₹425. The potential targets on the upside are at ₹495 and ₹515.

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Published on December 22, 2019
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