Technical Analysis

Weekly trading guide: Infosys weakens post corrective rally

Akhil Nallamuthu | Updated on April 05, 2020 Published on April 05, 2020

SBI (₹175.5)

The stock of SBI closed lower, posting a weekly loss for a sixth consecutive week, indicating a substantial downward momentum. The corrective rally during the preceding week could not lift the stock price beyond ₹200.

Until the price remains below this level, intermittent rallies might face selling pressure, capping on the upside. The stock is trading near the one-year low, ie, ₹173.5, and the price action in the daily chart indicates that the bear trend might have resumed post a corrective rally. But the oscillators hint at reduced downside traction.

The moving average convergence divergence indicator in the daily chart, though in the negative territory, is showing that the bearish thrust may be exhausting. The daily relative strength index has been flat and hovering near over-sold levels. Nonetheless, the major trend is bearish and until the stock stays below ₹200, one can take a bearish view.

Traders can sell the stock below ₹ 173.5 with a stop-loss at ₹190. On the downside, support levels can be spotted at ₹165 and ₹160, which can be potential targets. A break below ₹160 can drag the stock to ₹150.

ITC (₹177.9)

Bucking the broad market trend, the stock of ITC gained last week. It rallied past the 21-day moving average, which is currently at ₹164.7, and closed above a crucial resistance at ₹175. The price action in the daily chart indicates a potential trend-reversal as it has formed a higher high.

Also, one can observe a double-bottom candlestick pattern — an indication of bullish reversal. The neck level coincides at ₹175. Hence, the stock can be bullish in the short term. Affirming the bullish view, the daily relative strength index is in a strong upward trajectory and has gone above the mid-point level of 50.

The moving average convergence divergence indicator in the daily chart signals that the trend has turned bullish. So, traders can be bullish; but initiate fresh longs with a stop-loss at ₹164 if the price moves past ₹180. The stock can appreciate to ₹187 — the 50 per cent Fibonacci retracement level of the previous downtrend.

Above that level, ₹200 is a critical resistance. A projection based on the double-bottom candlestick pattern indicates that the stock can even rally to ₹210 in the near term.

Infosys (₹585.7)

Unable to carry the positive momentum from the preceding week, the stock of Infosys declined last week and closed below ₹600, an important support. The stock, after witnessing a gap-down open last week, attempted to rally, but failed.

Capping the gain was the 21-day moving average resistance at ₹655 levels, which coincided with the 50 per cent Fibonacci retracement level. Since ₹580 is a considerable support, the decline was arrested at that level. If the price breaches that level, the sell-off could intensify. The moving average convergence divergence indicator in the daily chart remains in the negative territory.

On the other hand, the daily relative strength index, which went past the mid-point level of 50 following a corrective rally, has fallen back below that level. Importantly, the overall trend remains bearish. So, traders can sell the stock with a stop-loss at ₹610 if it breaks below the support at ₹580.

The noticeable support levels on the downside are at ₹545 and ₹510, which can be potential near-term targets. If the stock rallies, the price band between ₹618 and ₹628 can sact as a significant hurdle.

RIL (₹1,077.4)

Last week, the stock of Reliance Industries opened with a gap-down. However, it failed to trend and was stuck between the price levels of ₹1,030 and ₹1,120; the stock is hovering around the 21-day moving average.

Unless the price comes out of the sideways trend, the next leg of the trend cannot be confirmed. The moving average convergence divergence indicator in the daily chart is denoting a bullish bias, despite being in the bearish zone.

The daily relative strength index is flat and remains below the mid-point level of 50. Notably, the overall trend is bearish, and ₹1,120 is a resistance. At that price point, the 38.2 per cent Fibonacci retracement level of the previous downtrend coincides, making it a substantial resistance.

Until the stocks stays below that level, the likelihood of the stock gaining from the current level is low. So, traders can remain bearish on the stock and initiate fresh short positions with a stop-loss at ₹1,100 if it breaks below the support at ₹1,030.

On the downside, ₹875 and ₹900 can act as a formidable support band. A break below ₹875 can intensify the sell-off, possibly dragging the price to ₹800.

Tata Steel (₹253.7)

The stock of Tata Steel witnessed a significant decline last week. But the stock price remains between the key levels ₹250 and ₹310. At ₹310, the 23.6 per cent Fibonacci retracement level coincides, making it a considerable hurdle.

The price action in the daily chart, though remaining in a range, is forming consecutive lower lows, indicative of a bearish bias. Also, the price is below both 21- and 50-day moving averages. The relative strength index is flat and is hovering near the over-sold levels.

The moving average convergence divergence indicator in the daily chart is flat as well and remains in the negative territory. However, unless the stock breaches either ₹250 or ₹310, the next leg of the trend cannot be confirmed.

So, even though the stock exhibits a bearish bias, traders can wait for a confirmation before initiating fresh positions. Traders can short the stock with a stop-loss at ₹275 only if the price breaks below the lower limit of the range, ie, ₹250.

The immediate support below that level is at ₹240, and further below that level, ₹225 can act as a considerable support.

Published on April 05, 2020

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