Technical Analysis

Weekly trading guide: ITC exhibits bearish trend

Akhil Nallamuthu | Updated on July 19, 2020 Published on July 19, 2020

SBI (₹188.2)

The stock of SBI depreciated last week after facing resistance at ₹200. As the stock is struggling to breach this level, the price action is gradually giving up its bullish bias. In the daily chart, the stock has largely been consolidating since mid-June with the critical levels at ₹200 and ₹176, the stock’s 50-day moving average.

That said, the next swing in price can be confirmed if either of these levels are taken out. Since the stock is sluggish, the daily relative strength index, though above the midpoint level of 50, is flat. Similarly, the moving average convergence divergence indicator in the daily chart, though in the bullish zone, remains flat.

Evidently, there is a lack of trend. Because of the above reasons, traders can hold back fresh positions until the price gives out any confirmatory signals. A breakout of ₹200 can turn the stock bullish where it might rally to ₹210 and ₹218.

On the other hand, a break below ₹176 can shift the tide in favour of bears where the stock could decline to ₹170. Subsequently, it might fall to ₹160.

ITC (₹194)

Throughout the past week, the stock of ITC moved in a narrow range between ₹194 and ₹200. Thus, the sideways trend has extended for a second week in a row and the stock continues to tread below the important hurdle at ₹200, where the 61.8 per cent Fibonacci retracement level of the previous downtrend lies.

The stock should breach this level in order to turn the trend bullish; until it remains below it, the likelihood of a decline from the current level is high. The moving average convergence divergence indicator in the daily chart is tracing a downward trajectory.

The daily relative strength index is hinting at a loss of strength in the uptrend; it has inched below the midpoint level of 50 — a bearish indication. Considering the above factors, traders can initiate fresh short positions in the stock with a stop-loss at ₹205. While the price area between ₹187 and ₹190 can be a support band, a break below this level can pull the stock down to ₹181.

The near-term outlook will turn negative if ₹181 is breached. The subsequent support is at ₹175.

Infosys (₹903.1)

The stock of Infosys witnessed a strong rally last week when it broke out of the crucial resistance of ₹800 with ease and closed the week at ₹903.1. Compared with the preceding week’s close of ₹781.8, this results in a substantial gain of a little over 15 per cent.

Consequently, the stock registered a fresh lifetime high of ₹955.5 last Thursday. It has closed in the green for five weeks in a row, and stays well above the 21-day moving average, both indicating a strong upward momentum. Until the stock stays above ₹800, the medium-term trend will remain bullish.

The daily relative strength index has risen sharply in tandem with the stock price and lies in the bullish region. The moving average convergence divergence indicator in the daily chart, which is in an upward trajectory, is showing a fresh positive momentum.

But rather than initiating fresh long positions at current levels, traders can either go long with a stop-loss at ₹900 if it rallies past ₹956, or go long with a stop-loss at ₹800 if the price moderates to ₹850. Above ₹956, the resistance is at ₹1,000.

RIL (₹1,911.7)

The stock of Reliance Industries witnessed a minor correction mid-week after marking a fresh lifetime high of ₹1,978.8 on Wednesday. But it took support at ₹1,800, and rallied towards the end of the week. The trend remains bullish.

The stock is well above the 21-day moving average and closed with a gain for three consecutive weeks. Even though it continues to form higher highs in the daily chart, there are indications of a loss in momentum. For instance, the daily relative strength index, though above the midpoint level of 50, is showing a bearish divergence, and unlike the stock, it has failed to form new highs.

Also, a bearish divergence is exhibited by the moving average convergence divergence indicator in the daily chart. Because of these reasons, traders can wait for fresh bullish indications before going long. If the stock rallies past the lifetime high, it can attract fresh buying interests, lifting the price further.

So, initiate fresh long positions with a stop-loss at ₹1,900 if the stock decisively breaches ₹1,980. The stock might rally to ₹2,050 and ₹2,100.

Tata Steel (₹350.9)

The stock of Tata Steel, which had been largely moving in a sideways trend last week, rallied on Friday and closed slightly above the crucial resistance of ₹350. It registered a four-month high of ₹356.8.

So, the stock, which had been forming higher lows, has now made higher high and crossed over the 38.2 per cent Fibonacci retracement level, displaying bullish inclination. If it can sustain above ₹350, the medium-term trend will turn bullish. Corroborating this, the daily relative strength index is showing a fresh uptick and lies above the midpoint level of 50.

The moving average convergence divergence indicator in the daily chart remains in the positive region, though it has been flat over the past two weeks. Nevertheless, the price action continues to be positive, and so traders can initiate fresh long positions on declines with a stop-loss at ₹330, ie, just below the 21-day moving average.

On the upside, the immediate resistance is at ₹370. A breakout of that level can take the stock to ₹385, above which lies the critical level of ₹400.

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Published on July 19, 2020
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