Technical Analysis

Weekly Trading Guide: ITC fails to extend the rally

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

SBI (₹318)

The stock of SBI faced considerable selling pressure, and the price fell throughout last week. However, the support at ₹310 arrested the decline and the stock recouped some of its losses, before closing the week at ₹318. Thus, the stock has broken below the range between ₹325 and ₹340, giving it a bearish outlook. It has also slipped below the 23.6 per cent Fibonacci retracement level.

 

 

Adding to the bearish outlook, the daily relative strength index is showing fresh downtick and has broken below the midpoint level of 50. The moving average convergence divergence indicator in the daily chart is hinting a negative outlook, as it has entered the bearish territory. All these factors point to a further weakening in price. However, from a trading perspective, it is not recommended to initiate fresh short positions at current levels, as ₹310 has been acting as a substantial support. Notably, the price has bounced thrice from that level since December 2019. Thus, traders can go short once the price decisively breaks below ₹310 for potential targets at ₹298 and ₹292 with a tight stop-loss.

ITC (₹239.9)

Continuing with its recent bullish bias, the stock opened last week on a front foot. It moved past the 21-day moving average, breached the hurdle at ₹242 and rallied past the 23.6 per cent Fibonacci retracement level of the previous bear trend. The stock made a higher peak in the daily chart and registered a three-week high of ₹243.8. However, it was not able to build a sustainable rally as it faced the 50-day moving average resistance at ₹244, from where it declined. The stock gave up its entire gain and closed the week flat at ₹239.9 versus its previous weekly close of ₹238. The daily relative strength index has fallen back below the midpoint level of 50 as the price moderated towards the end of the week, but the moving average convergence divergence indicator in the daily chart remains in the bullish region. If the bulls regain traction and the price closes above the 50-day moving average, the stock can be expected to rally further. Until then, the outlook seems uncertain. From the trading perspective, it is recommended to initiate fresh long positions above the 50-day moving average.

Infosys (₹767.8)

The stock of Infosys rallied last week after facing a correction during the week before. It bounced from the 50-day moving average support at ₹710. The stock has closed above the key resistance at ₹760, which coincides with the 61.8 per cent Fibonacci retracement level. Thus, in the daily chart, it continues to form higher highs, indicating considerable bullish momentum. The daily relative strength index continues to form fresh upticks following the price; the moving average convergence divergence indicator in the daily chart stays in the positive region. Both are positive indications hinting further strengthening of the stock. Hence, traders are advised to initiate fresh long positions on declines and place a dynamic stop-loss. While the initial stop-loss can be at ₹740, shift it upwards with a gap of 1.5 times the daily Average True Range as the stock appreciates. The 21-day moving average coincides with ₹740, making it an important support. On the upside, the immediate resistance is at the round number ₹800. Above that level, the resistance is at ₹818.

RIL (₹1,581)

Reliance Industries seems to have resumed its uptrend after a sluggish period that lasted for a month. The stock price moderated during the first half of last week, but it rebounded in the second half strongly from ₹1,530 levels, where the 21- and 50-day moving averages coincide. The stock has also breached an important resistance at ₹1,575, opening the door for further appreciation. Corroborating the upward bias, the daily relative strength index is showing a fresh uptick, and has comfortably moved above the midpoint level of 50. Also, the moving average convergence divergence indicator in the daily chart is showing signs of recovery and has entered the bullish territory. Traders are thus recommended to buy the stock on declines with a dynamic stop-loss. While the initial stop-loss can be placed at ₹1,540, move it on the upside with a gap of 1.5 times the daily Average True Range as the stock advances. The stock will most likely retest its lifetime high at ₹1,617.5, beyond which it might even rally towards the resistance band between ₹1,690 and ₹1,700.

Tata Steel (₹495.2)

The stock of Tata Steel inched up last week, extending its recent rally. It now faces a considerable resistance at ₹500. Importantly, the 50 per cent Fibonacci retracement level of the downtrend that extended between early 2018 and late 2019 is at ₹500, making it a significant level. Thus, for the stock to rally further, it must decisively breakout beyond it. Bulls should be cautious as there are indications of a weakening rally, in addition to the resistance. The daily relative strength index is hovering around the over-bought levels, and when the price formed new highs, the index did not form new highs. The moving average convergence divergence indicator in the daily chart is flat despite the rally. Also, as shown by a falling Average True Range, the trading range has been narrowing for the past few trading sessions, which can be an indication of a loss in the bullish momentum. Thus, from a trading perspective, recommendation is to go long in the stock only if it closes above ₹500 and place a stop-loss at ₹485. On the upside, the resistance levels are at ₹515 and ₹530.

Published on January 19, 2020
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