Technical Analysis

Weekly trading guide: Infosys can be bullish in near term

Akhil Nallamuthu | Updated on March 29, 2020

SBI (₹195.9)

The stock of SBI opened with a gap-down and was trading flat during the past week. It registered a fresh 52-week low of ₹173.5 last Tuesday. Towards the end of the week, the stock attempted to recover, but was unable to close above the important level of ₹200.

On the upside, there is a resistance band between ₹210 — the 23.6 per cent Fibonacci retracement level — and ₹215. For the stock to reverse the trend, it should breach this resistance band. Notably, the price remains below both the 21- and 50-day moving averages. But there are indications that the downtrend is losing its momentum.

The moving average convergence divergence indicator in the daily chart, though in the negative territory, is showing a loss in bearish momentum. The daily relative strength indicator is hovering near the over-sold level and unlike the price, it did not register new lows.

Given that the resistance band between ₹210 and ₹215 is key, traders can initiate long positions with a tight stop-loss if the stock decisively breaks out of that level.

ITC (₹163.2)

The stock of ITC closed lower than its previous weekly close, and the price remains below the 21- and 50-day moving averages. However, ₹140 has been acting as a significant support, limiting the downside for the past two weeks.

The daily relative strength indicator is in an upward trajectory and its sharp rise hints at considerable bullish momentum. Also, the moving average convergence divergence indicator in the daily chart is indicating that the momentum is shifting in favour of the bulls.

However, there is a resistance at ₹170 — the 21-day moving average. In the daily chart, the price action shows that the stock has been oscillating between two key levels of ₹140 and ₹170 for the past two weeks and the next leg of trend can be confirmed only if the stock breaches either of these levels.

So, traders can remain on the sidelines until then. A daily close above ₹170 can turn the trend bullish where the stock can rally to ₹187 — the 50 per cent Fibonacci retracement level.

But if the bear trend resumes, a break below ₹140 can drag the stock to ₹125.

Infosys (₹652.7)

After a gap-down open last Monday, the stock of Infosys immediately started recovering by taking the support at ₹520. The stock then rallied throughout the week and closed at ₹652.7 on Friday after registering an intra-week high of ₹674.9; it currently faces the 21-day moving average resistance at ₹654.

The daily relative strength indicator has come up in tandem with the price and is now hovering around the mid-point level of 50. The moving average convergence divergence indicator suggests that the bulls are gaining traction. Since the major trend remains bearish, a close above the resistance at ₹654 increases the possibility of further rise.

Traders can initiate fresh long positions in the stock with a stop-loss at ₹610 if it rallies above ₹654. On the upside, the stock has a resistance band between ₹690 and ₹700. This level coincides with the 61.8 per cent Fibonacci retracement level.

A breakout of that level can lift the stock to ₹730. But if the stock declines, ₹618 will act as a support and until the stock stays above that level, further decline is less likely.

RIL (₹1,065.6)

The stock of Reliance Industries opened on a weak note last week and it registered a fresh one-year low of ₹875.6 on Monday; but the stock reversed immediately. Thus, it has formed a support band between ₹875 and ₹900, and as long as the stock stays above that level, the possibility of further decline is low.

The stock extended the rally till ₹1,120 but was unable to advance beyond that level. The 38.2 per cent Fibonacci retracement level and the 21-day moving average coincide at ₹1,120, making it a substantial resistance. Following the recent rally, the daily relative strength indicator is showing a fresh uptick, whereas the moving average convergence divergence indicator in the daily chart is indicating a reversal in trend.

Since the stock is facing a strong resistance, traders can go long in the stock with a stop-loss at ₹1,040 if it rallies past ₹1,120. Above that level, the resistance levels can be spotted at ₹1,215 and ₹1,250, which can be the potential short-term targets.

If the stock price moderates, ₹1,040 can act as a support.

Tata Steel (₹277.2)

Despite closing marginally lower, the daily chart shows that the stock of Tata Steel was in a sideways trend for the past two weeks, fluctuating between ₹255 and ₹310. After opening lower, it traded flat throughout the week. At ₹310 is the 23.6 per cent Fibonacci retracement level, making it a considerable hurdle.

So, for the stock to establish a sustainable rally, it has to break out of that level. The daily relative strength indicator stays flat, but remains below the mid-point level of 50. The moving average convergence divergence in the daily chart, though in the bearish zone, is indicating that the momentum is shifting in favour of the stock.

However, unless the stock breaches either ₹255 or ₹310, the next leg of the trend cannot be confirmed. Until then, traders can stay on the side lines. A breakout of ₹310 can lift the stock price to ₹325 and ₹340 — the 38.2 per cent Fibonacci retracement level..

Whereas, if the price moderates and breaches ₹255, the stock might decline to ₹240.

Published on March 29, 2020

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