Technical Analysis

Weekly trading guide: ITC consolidates with upward bias

Akhil Nallamuthu | Updated on June 07, 2020

SBI (₹187.8)

The stock of SBI surged last week and posted a significant gain of a little over 16 per cent. It has thus closed in the green for two straight weeks, indicating a considerable bullish momentum.

Consequently, the price has gone above both the 21- and 50-day moving averages, turning the short-term outlook positive; the stock can be bullish until it remains above ₹175. Substantiating the upward bias, the daily relative strength index has been rising along with the stock and has moved above the mid-point level of 50.

Also, the moving average convergence divergence indicator in the daily chart is in an upward trajectory and is on the verge of entering the positive territory. All these factors point to a potential rally in upcoming trading sessions.

However, one should be aware of the resistance at ₹192, where the 23.6 per cent Fibonacci retracement of the previous trend lies. So, taking that into account, traders can go long with a stop-loss at ₹175 if the price rallies past ₹192. The subsequent resistance can be spotted at ₹200. A breakout of this level can take the stock to ₹218.

ITC (₹200)

Even as the recent trend was bullish, the stock of ITC was largely trading in a tight range last week. It hovered around the critical level of ₹200, oscillating between ₹195 and ₹205 throughout the week.

Nevertheless, the stock is trading above the key support of ₹190, and as long as it remains so, it has a good chance to rally. Notably, the 50 per cent Fibonacci retracement of the prior downtrend coincides at ₹190, making it a significant level. Also, the stock stays well above both the 21- and 50-day moving averages and remains above the prior high, hinting at a good bullish momentum.

Supporting the upward bias, the daily relative strength index, though flat, is well above the mid-point level of 50. The moving average convergence divergence indicator in the daily chart, which already lies in the positive territory, retains the upward trajectory.

Considering these factors, traders can buy the stock on declines with a stop-loss at ₹185. On the upside, the the immediate resistance levels are at ₹216 and ₹230, which can be the potential near-term targets.

Infosys (₹703.5)

The stock of Infosys inched up last week and ended above the important level of ₹700, where the 61.8 per cent Fibonacci retracement coincides. However, the breakout does not look significant, which is affirmed by the price action that followed. The stock was fluctuating in a sideways trend between ₹695 and ₹712 post- breakout.

But the short-term trend of the stock is inclined to the upside as the support at ₹650 holds the key. Moreover, the price is above the 21- and 50-day moving averages — a bullish indication. Since the stock has been largely consolidating for the past two weeks, the daily relative strength index has been flat; it, however, stays above the mid-point level of 50.

Similarly, the moving average convergence divergence indicator, though in the bullish region, has been flat. The above factors show that the stock has a bullish bias, but it is struggling to move up.

Given the circumstances, traders can initiate fresh long positions with a stop-loss at ₹670 if the stock decisively rallies past the nearest resistance at ₹725. Above ₹725, the stock might rally to ₹760 and ₹800.

RIL (₹1,581.7)

The stock of Reliance Industries rallied sharply last week and broke out of a strong resistance at ₹1,500. Importantly, it registered a fresh lifetime high of ₹1,618 on Friday before ending the week at ₹1,581.7.

The price action in the daily chart suggests that the next leg of the bull trend has begun and so the stock can be expected to make fresh highs during the forthcoming sessions. The stock can be bullish until it stays above the support band between ₹1,485 and ₹1,500. Between these levels lies the 21-day moving average, making it a strong support area.

Notably, the 21-day moving average is well above the 50-day moving average, indicating that the uptrend is intact. Following the surge in price, the moving average convergence divergence indicator in the daily chart, which was beginning to show signs of weakness, now seems to be hinting at built-up of an upward momentum. The daily relative strength index, which is above the mid-point of 50, is showing a fresh uptick.

So, traders can buy the stock on declines with a stop-loss at ₹1,475. The potential targets can be ₹1,700 and ₹1,730.

Tata Steel (₹338.9)

The stock of Tata Steel, which had been moving in a sideways trend between ₹250 and ₹300 since mid-March, broke out of the range on Monday, turning the outlook positive. It posted a weekly gain of nearly 15 per cent as it ended the session at ₹338.9 compared with the preceding week’s close of ₹295.2.

The uptrend seems to be strong as the price surged throughout the week and breached the hurdle at ₹325 as well. As the stock rallied, the daily relative strength index moved up sharply, indicating a significant strength of the up-move.

Also, the moving average convergence divergence indicator in the daily chart has now moved into the positive territory. However, the stock has a notable hindrance at ₹345, where the 38.2 per cent Fibonacci retracement of the previous downswing lies.

Hence, traders can either go long with a stop-loss at ₹310 if the price breaches ₹345 or buy the stock with a stop-loss at ₹300 if the price moderates to ₹325. Above ₹345, the resistance levels are at ₹360 and ₹370 — the 50 per cent Fibonacci retracement level.

Published on June 07, 2020

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