Technical Analysis

Weekly trading guide: ITC might witness short-term recovery

Akhil Nallamuthu | Updated on February 22, 2020 Published on February 22, 2020

SBI (₹327.6)

Last week, the stock price of SBI moderated to ₹310, which coincides with the 38.2 per cent Fibonacci retracement level of the previous uptrend. It witnessed a considerable buying interest at that level; the price rallied and the stock closed the week at ₹327.6. This is the highest weekly close in the past five weeks. It has broken above the resistance at ₹325, opening the door for further strengthening. The price has moved above the 21- and 50-day moving averages. Hence, the outlook of the stock is bullish.

Substantiating the positive view, the daily relative strength index is showing a fresh uptick and has gone above the mid-point level of 50 — an indication of improving bull strength. Also, the moving average convergence divergence indicator in the daily chart is exhibiting a bullish bias as it enters the positive territory. Traders can buy the stock on declines, with a stop-loss at ₹308. On the upside, the resistance levels can be spotted at ₹338 and ₹343, which can be the potential targets for the long positions.

ITC (₹207.4)

Though the stock of ITC saw its price come down during the first half of the week, it recovered in the second half and ended the week on a flat note. After registering a fresh one-year low of ₹200.5 in mid-week, the stock bounced and closed at ₹207.4. But the major trend remains bearish and the price should decisively break out of the resistance at ₹220 for the rally to be sustainable. The level of ₹220 coincides with the 21-day moving average, making the resistance significant.

Notably, there are signs of a recovery. The daily relative strength index is showing a bullish divergence, an indication of a trend-reversal. The moving average convergence divergence indicator in the daily chart, though still in the bear zone, is showing signs of the downtrend losing momentum. So, for the short term, traders with a higher risk appetite can buy the stock with a stop-loss at ₹200 if it rallies past ₹210. The primary target can be at ₹220. Above that level, the medium-term trend of the stock might turn bullish, potentially lifting the price to ₹230.

Infosys (₹797)

The stock of Infosys inched up in the past week and closed with a gain for a second consecutive week. It is hovering around the critical level of ₹800. The stock is unable to breach that level decisively. It closed the week at ₹797 after registering an intraweek high of ₹806.1. It remains above both the 21- and 50-day moving averages, keeping the positive bias intact. As long as the price trades above ₹760, a bearish trend-reversal might not happen.

Despite the price action showing an upward bias, the daily relative strength index, which remains above the mid-point level of 50, is not showing an uptick. On the other hand, the moving average convergence divergence indicator in the daily chart is flat. Since the stock is facing a considerable resistance at ₹800 and there are signs of the uptrend losing strength, traders can wait for the stock to break out of that level. Fresh long positions with a stop-loss at ₹775 can be initiated if the stock rallies past ₹800. The potential targets on the upside are ₹832 and ₹847.

RIL (₹1,485.9)

Throughout the week, the stock of RIL attempted to rise above the critical resistance of ₹1,500 but was unable to do so. The 61.8 per cent Fibonacci retracement level of the previous bear trend was at ₹1,510 and the 50-day moving average coincides with that level. Thus, the price band between ₹1,500 and ₹1,510 can act as a resistance. On the other hand, the stock has not witnessed a correction. This might mean that the stock could go into a consolidation phase with its boundaries at ₹1,457 and ₹1,510.

But the daily relative strength index has been rising along with the stock price, and moved above the mid-point level of 50. Also, the moving average convergence divergence indicator in the daily chart is showing renewed upward momentum. Fresh long positions are not recommended until the price trades below ₹1,500. Traders can buy the stock with a stop-loss at ₹1,450 if it decisively breaks out of ₹1,500. On the upside, the resistance levels can be spotted at ₹1,550 and ₹1,575, which can be the potential short-term targets.

Tata Steel (₹443.5)

The stock of Tata Steel was largely sluggish throughout the past week and the daily chart indicates that going forward, the stock might move into a sideways trend. Unless the stock breaches either ₹420 or ₹460, the next trend cannot be confirmed. But there are a few bearish indications. The relative strength index is below the mid-point of 50 and the moving average convergence divergence indicator in the daily chart is in the bear zone. Also, the 21-day moving average has crossed below the 50-day moving average. Despite these indications, the stock must break below ₹420 to confirm a further decline in price.

Considering these factors, it is recommended that fresh short positions be initiated only below ₹420. Place the stop-loss at ₹460. If the price falls below ₹420, the immediate support can be seen at ₹392, which coincides with the 61.8 per cent Fibonacci retracement level of the previous bull trend. Below that level, the stock can fall to ₹380. On the upside, the resistance above ₹460 is at ₹486.

Published on February 22, 2020
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