Technical Analysis

Weekly trading guide: Infosys stays above key base

Akhil Nallamuthu | Updated on May 10, 2020 Published on May 10, 2020

SBI (₹166.6)

The stock of SBI, which has been trading in a sideways trend between ₹173.5 and ₹200 for over a month, broke below the lower boundary of the range last week and closed at ₹166.6. On Friday, it registered a fresh one-year low of ₹166.1, which is also the lowest price since February, 2016.

The fresh breakdown has opened the door for further weakness. The fact that the trend prior to the consolidation had been bearish will only make the case stronger for sellers. Last week, the price slipped below the 21-day moving average. The moving average convergence divergence indicator in the daily chart is showing signs of fresh downward momentum and remains in the negative territory.

Also, the daily relative strength index, which was already below the midpoint level of 50, is showing a fresh downtick. Given these bearish indications, traders can short the stock on rallies with a stop-loss at ₹185.

On the downside, the stock might find a base in the form of a support band between ₹150 and ₹156. A break below those levels can drag the stock price to ₹140.

ITC (₹158.2)

Unable to break out of resistance at ₹187, the stock of ITC declined sharply last week, falling below both the 21- and 50-day moving averages. The stock has breached the critical support of ₹175, turning the outlook bearish. The stock registered a five-week low of ₹157.1 on Friday.

Thus, the recovery phase, which had been in place for the past one month, seems to have hit a roadblock, and now the stock might be aligning with the major bear trend. Corroborating the bearish outlook, the daily relative strength index has dipped below the midpoint level of 50 and is exhibiting downward strength.

The moving average convergence divergence indicator in the daily chart, which was hovering in the neutral region, has fallen to the negative territory. Thus, all the factors point to a possible decline from current levels. But the stock has a minor support at ₹155.

So, traders can sell the stock if it breaks below ₹155 and place a stop-loss at ₹166. The immediate support below ₹155 can be spotted at ₹146. Below that level, the stock might test its prior low at ₹134.6.

Infosys (₹674.2)

The stock of Infosys declined last week as it struggled to retain the upward momentum. Notably, it had gained during the preceding two weeks. The price has slipped below the support of ₹700, but remains above the crucial level of ₹650.

Also, it stays above the 21- and 50-day moving averages, which lie at ₹655 and ₹663, respectively. This indicates that the stock still has several supports which can arrest the decline and even help resume its upswing. Substantiating this, the moving average convergence divergence indicator in the daily chart remains in the positive territory. The daily relative strength index, too, lies above the midpoint level of 50.

So, despite moderation in price, a bearish trend-reversal cannot be confirmed yet. One can be bullish until the stock remains above ₹650. Hence, traders can go long on the stock with a stop-loss at ₹630. A resumption in uptrend can lift the stock price beyond ₹700, where it can retest its previous high of ₹720.

The nearest resistance above that level is at ₹760, beyond which the stock can rally towards the resistance at ₹800.

RIL (₹1,561.8)

The stock of Reliance Industries has been one of the standout performers among the major stocks. Retaining its strong bull trend, the stock appreciated last week and is now within a striking distance from its all-time high, which is ₹1,617.5.

Though the stock looked sluggish during the first half of last week, it regained traction and rose sharply towards the end, decisively breaking out of the resistances at ₹1,500 and ₹1,540. Adding to it, the 21-day moving average has crossed over the 50-day moving average. Ending the week at ₹1,561.8, the stock has posted gains for seven weeks in a row, a strong bullish indication.

The daily relative strength index continues to rise in tandem with the stock price. The moving average convergence divergence indicator in the daily chart remains in a strong upward trajectory.

Considering the above factors, traders can initiate fresh long positions on the stock on declines with a stop-loss at ₹1,425. The stock can potentially test its lifetime high of ₹1,617.5. A breakout of that level can lift the stock to ₹1,700.

Tata Steel (₹272.9)

After opening with a gap down, the stock of Tata Steel was moving in a sideways trend throughout the last week. Thus, the stock remains within the broader consolidation range between ₹250 and ₹300. Unless it breaches either of these levels, the next leg of the trend cannot be confirmed.

The 50-day moving average is at ₹305. Thus, the price area between ₹300 and ₹305 can act as a resistance band. As there is a lack of trend, the daily relative strength index remains flat, and lies below the midpoint level of 50.

But the moving average convergence divergence indicator in the daily chart has been in an upward trajectory. However, it shows signs of the bulls losing strength. Until the price oscillates within ₹250 and ₹300, the stock cannot be expected to trend; so, traders can adopt a range-trading strategy till a break occurs.

Above the upper boundary of the range, the resistance levels can be spotted at ₹325 and ₹345, the 38.2 per cent Fibonacci retracement level. The support levels below the lower boundary of the range are at ₹240 and ₹225.

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Published on May 10, 2020
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