Technical Analysis

Weekly trading guide: ITC likely to decline further

Akhil Nallamuthu | Updated on November 24, 2019 Published on November 24, 2019

SBI (₹329.3)

After inching past the resistance at ₹324 — the 61.8 per cent Fibonacci retracement level of the prior bullish trend — the stock of SBI had been largely trendless and hovering around ₹330 over the past few trading sessions. But it has managed to form a higher peak, and the 21-day moving average continues to stay above the 50-day moving average, a bullish indication. As long as the price stays above ₹320, the near-term outlook for the stock looks positive. However, one needs to be cautious about certain weakness shown by indicators. By plotting the relative strength index in the daily chart, we can observe that the new high in the stock price is not accompanied by a new high in the indicator. This could lead to formation of a bearish divergence. Also, the moving average convergence divergence indicator is showing a loss of momentum in the uptrend. Hence, it is advised not be outright bullish and apply caution while taking new positions. If the stock gains momentum and advances, it will most likely reach ₹335 with ₹347 as the resistance above it. But if the stock declines from the current level, it has a support within a short span at ₹324. The subsequent support is at ₹315.

ITC (₹247.6)

The bearish trend continued as the stock of ITC declined last week. Noticeably, the stock has been in a downtrend since the beginning of the month, after marking its recent high at ₹266.3. Closing at ₹247.6, the stock closed with a loss for a third consecutive week. On Thursday, the stock closed below the support band between ₹247 and ₹250, confirming the break of the support. The uptick in price that followed seems to be a mere retracement before further weakening. Also, the price has slipped below the 50-day moving average. The daily relative strength index has dipped below the mid-point level of 50, and the moving average convergence divergence indicator has entered the negative territory, both of which indicate a bleak outlook for the stock. Thus, the possibility of continuation of the downtrend cannot be neglected. The stock will find support at ₹242, below which the support is at ₹234.05 — a 52-week low — where some profit- booking can be expected. But if price breaches that level, sell-off can intensify as the stock could attract more bears. On the other hand, if the stock recovers from the current level, ₹250 will act as a hurdle; beyond that, the resistance is at ₹258.

Infosys (₹693.2)

The stock of Infosys, after a sharp decline in October, has been on a recovery phase since the beginning of November. But recently, the price seems to be consolidating within a range between ₹690 and ₹725. The 21-day moving average coincides with the lower boundary of the range, making the support significant. Hence, the recent uptrend will not be under threat until the price stays above ₹690 and the short-term outlook is positive. But for the recovery to sustain, the stock must break out of the upper boundary of the range at ₹725. Of late, the moving average convergence divergence indicator suggests a loss in bullish momentum. So, a prolonged consolidation might trigger a downward movement. From a trading perspective, it is advisable to wait for the price to breach either of the boundaries of the range. Assuming that the stock breaks out of ₹725, the recovery will lift the price to ₹760. This is a critical level as the 61.8 per cent Fibonacci retracement of the previous bear trend coincides with the 50-day moving average. Further appreciation will take the stock price to ₹800. Alternatively, if the stock breaks down from the range, it could slump to ₹665, below which the support is at ₹620.

RIL (₹1,546.5)

Continuing with the strong rally, the stock of Reliance Industries registered a new lifetime high at ₹1,572.4 last week. The returns on the stock for the week was 5.1 per cent, indicating a substantial strength in the bullish trend. The corrective rally in the first week of November seems to be acting as a strong base for the stock to build a sustainable uptrend; the price is expected to clock new highs from the current levels in coming days. Though the stock is bullish, a couple of daily candlesticks in the past week has formed a shooting star pattern. This denotes a possible trend-reversal. Hence, it is recommended to initiate fresh long positions once the stock advances beyond ₹1,572.4, which could invalidate the pattern. But there are certain factors playing out in favour of the stock. The daily relative strength index is showing an uptick and the moving average convergence divergence indicator has moved back into the positive territory, hinting an improved bullish strength. On the back of this, if the stock breaks out of ₹1,572.4, it will most likely appreciate to ₹1,617 and to ₹1,665 beyond it. If the stock undergoes a correction, it has a support at ₹1,530. Below that level, the stock could decline to ₹1,500, which is a key support.

Tata Steel (₹400)

Though the stock of Tata Steel was volatile during the past week, it failed to trend in any direction. A mid-week decline was arrested by the 38.2 per cent Fibonacci retracement level of the previous bullish trend at ₹383. This level, along with the support at ₹380 has formed a support band. Also, ₹380 is the neck level of the double bottom pattern in the weekly chart. Hence, until the stock manages to trade above ₹380, the chances for price appreciation are high. Adding to it, the stock has bounced from the 21-day moving average at ₹392 and also remains above the 50-day moving average. But for the rally to be sustainable, the stock should decisively break out of ₹415. Even though the stock is staying above ₹380, there are certain indications to be wary of. The daily relative strength index is showing a downtick and the moving average convergence divergence indicator is exhibiting weakness by slipping below the zero level. The next leg of the trend will be established only if the stock either breaks ₹380 or ₹415. If it breaks out of ₹415, it can appreciate to ₹440, whereas a break below ₹380 may drag the price to ₹360.

Published on November 24, 2019
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