Technical Analysis

Weekly trading guide: Infosys might soften before next rally

Akhil Nallamuthu | Updated on July 26, 2020 Published on July 26, 2020

SBI (₹191.9)

Last week, after an initial gain, the stock of SBI began to move sideways. On Thursday, it attempted to breach the critical resistance of ₹200, but was unable to move beyond that level. Notably, the stock has been forming higher lows since mid-June but continues to remain below ₹200.

Consequently, the price action in the daily chart has formed an ascending triangle, but the pattern can be confirmed only if the price breaches ₹200. Since the stock is sluggish, the daily relative strength index, though above the midpoint level of 50, is flat. Similarly, even though the moving average convergence divergence indicator in the daily chart stays in the bullish zone, it remains flat.

There are certain indications that point to a bullish bias, such as the price remaining above the 21-day moving average and the price making higher lows in the daily chart. However, the stock should breach ₹200 to build a sustainable rally.

So, traders can buy the stock with a stop-loss at ₹185 if it decisively breaks out of ₹200. Above ₹200, the stock might face a hurdle at ₹210 and at ₹218.

ITC (₹199.6)

The stock of ITC went up last week after taking support of the 50-day moving average at ₹192. But the resistance band between ₹200 and ₹206 prevented the bulls from gaining beyond these levels. The 61.8 per cent Fibonacci retracement level of the previous downtrend is at ₹200, making it an important level.

As the stock appreciated last week, the daily relative strength index is showing a fresh uptick and lies above the midpoint level of 50. The moving average convergence divergence indicator, though in the positive territory, was in a downward trajectory until last week. Now, it is turning upside, giving the stock a bullish bias.

Nevertheless, the stock should breach the resistance band to establish a sustainable rally. On the other hand, if the stock consolidates around these levels, it will open the door for a possible downtrend.

Considering these factors, rather than initiating long positions at current levels, traders can go long on the stock with a stop-loss at ₹190 if it rallies past the resistance band between ₹200 and ₹206. A breakout of ₹206 can take the stock to ₹218 and ₹225.

Infosys (₹922.8)

The stock of Infosys ended last week with a gain despite an intra-week price moderation. With that, it has closed in the green for six consecutive weeks, indicating a strong bullish momentum.

Also, the stock remains above ₹900 and the 21-day moving average. Until the price remains above ₹800, the medium-term trend will be bullish. Substantiating the positive outlook, the daily relative strength index in the daily chart is bullish and lies well above the midpoint level of 50.

The moving average convergence divergence in the daily chart is in the bullish zone and the indicator is in good upward trajectory. Notably, the price action in the daily chart shows that the stock might witness a minor correction before resuming the next leg of uptrend.

Taking these factors into account, traders for now can stay on the fence and can either go long on the stock with a stop-loss at ₹900 if the price moves above the lifetime high at ₹955.5 or go long on the stock with a stop-loss at ₹800 if the price softens to ₹860. Above ₹955.5, the stock will most likely move towards the psychological level of ₹1,000.

RIL (₹2,146.1)

Extending the rally, the stock of Reliance Industries advanced throughout last week. Importantly, it breached the critical level of ₹2,000 and made a fresh all-time high of ₹2,163 on Friday, before closing the week at ₹2,146.1.

Thus, the stock registered a substantial return of a little over 12 per cent last week. As a result, the indicators are showing strong bullish momentum. The daily relative strength index, which had exhibited signs of bearish divergence, is now showing a fresh uptick and indicates considerable strength in the uptrend.

The moving average convergence divergence indicator in the daily chart, which had remained flat for the past two weeks, has now started to trace an upward trajectory. Moreover, the stock is continuously forming higher highs and higher lows since early April — a strong positive indication.

So, the stock appears very bullish and is likely to form fresh lifetime highs in the upcoming trading sessions. Hence, traders can initiate fresh long positions on declines with a stop-loss at ₹2,000. The stock is likely to rally to ₹2,200 and ₹2,270.

Tata Steel (₹346.1)

The stock of Tata Steel, which rallied during the first half of last week, registered an intra-week high of ₹362.9. However, it reversed from that level towards the end of the week and closed marginally lower at ₹346.1, compared with the preceding week’s close of ₹350.9.

The daily relative strength index is above the midpoint level of 50 and the moving average convergence divergence indicator stays in the bullish zone. However, both the indicators do not really exhibit strong momentum. Nonetheless, the price pattern in the daily chart continues to form higher highs and higher lows — a bullish indication.

Also, the stock remains above the 38.2 per cent Fibonacci retracement level of the previous downtrend and the price remains above the 21-day moving average, keeping the short-term outlook bullish. So, traders can buy the stock on dips with a stop-loss at ₹320 — its 50-day moving average.

A rally from the current levels can take the stock to its prior high, ie, near ₹363. Above that level, there is a resistance at ₹370 — the 50 per cent Fibonacci retracement level.

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Published on July 26, 2020
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