Technical Analysis

Weekly trading guide: ITC moves in a narrow range

Akhil Nallamuthu | Updated on August 23, 2020

SBI (₹198.4)

The stock of SBI stayed sluggish last week as it oscillated between ₹192 — the 23.6 per cent Fibonacci retracement of the previous downswing — and ₹200. At ₹192 lies the 21-day moving average, making it a considerable support.

However, the stock is not gaining sustainable bullish momentum. On Friday, it made an intra-day high of ₹201.5 but retracted below ₹200, closing at ₹198.4. As the price stays sideways, the relative strength index and the moving average convergence divergence indicator in the daily chart are flat. Notably though, both lie in their respective bullish region.

However, as along as the price remains within ₹192 and ₹200, the direction of the next leg of trend will be uncertain. Because of the above factors, traders can hold back fresh positions until the stock exhibits some certainty over the next price swing. If the stock decisively breaks out of ₹200, it is likely to rally to ₹212.

Above that level, it can move up to ₹218. On the other hand, if the stock weakens below ₹192, it may depreciate towards the support between ₹178 and ₹182. The subsequent support is at ₹170.

ITC (₹196.8)

For seven weeks in a row, the stock of ITC has been trading in a narrow price band between ₹192 and ₹202. Hence, for now, there are no signs of the stock establishing a trend either ways.

Broadly speaking, the stock has been in a wider range between ₹181 and ₹208 since the beginning of June. The scrip should breach either ₹192 or ₹202 to indicate that it is beginning to trend. Following the sideways trend, the 21- and the 50-day moving average has converged towards each other, where both the averages now stay around ₹196.

Also, the moving average convergence divergence indicator in the daily chart is very flat. The daily relative strength index, which moderated a bit during the week before, turned flat last week. Considering the above factors, traders can stay on the fence until there is a trend confirmation.

If the stock breaches ₹202, it might face a hurdle immediately at ₹208. A breakout of ₹208 can lift the stock to ₹220. But if it moves southwards, the support below ₹192 is at ₹181.

Infosys (₹948.8)

The stock of Infosys has been on a strong uptrend since late March this year. But it has been treading in a horizontal path for the past three weeks — oscillating between ₹940 and ₹970.

A consolidation phase or a minor correction can happen on an uptrend and, notably, the stock will be inclined to upside until it manages to trade above ₹900. The 23.6 per cent Fibonacci retracement level of the previous upswing lies at ₹914 — this along with ₹900 forms a considerable support band.

As the stock charts a sideways trend, the daily relative strength index has gradually come off its peak and the moving average convergence divergence indicator in the daily chart has been in a downward trajectory for the past two weeks. However, both the indicators stay in their respective positive territories.

Since the stock is above the important level of ₹900 and the overall trend is bullish, traders can be positive and go long on declines with a stop-loss at ₹880. While ₹1,000 can be the nearest hurdle, the stock is highly likely to cross over that level and appreciate to ₹1,040.

RIL (₹2,081.8)

Extending the sideways trend, the stock of Reliance Industries largely held between ₹2,080 and ₹2,155 throughout last week. The price action in the daily chart shows that the scrip has been consolidating for nearly a month, and a prolonged consolidation can go on against the bulls, resulting in a considerable correction.

But the stock stays above the support of ₹2,000. The 23.6 per cent Fibonacci retracement level of the previous uptrend coincides at ₹2,000, making it a good base for the stock; as long as the price is above that level, it can be bullish-biased.

As there is lack of trend at the moment, the relative strength index and the moving average convergence divergence indicator in the daily chart remain flat. Nonetheless, both the indicators are in the bullish zones.

Considering the aforementioned factors, traders can wait for the stock to correct to ₹2,000 or break out of ₹2,200, ie, either go long with a stop-loss at ₹1,930 if the price softens to ₹2,000, or initiate fresh long positions with a stop-loss at ₹2,100 if the stock rallies past ₹2,200. Beyond ₹2,200, it can rally to ₹2,250.

Tata Steel (₹428.8)

The stock of Tata Steel continued to rally last week as well. It registered a fresh six-month high of ₹442 on Friday before closing at ₹428.8. The upward momentum seems to be intact as the stock continues to form higher highs in the daily chart.

Moreover, it has closed in the green for four straight weeks, indicating that bulls are in the driving seat. However, buyers need to be cautious at the current level because the price level of ₹430 is a resistance, Unlike the stock, the daily relative strength index has not formed a fresh high and the moving average convergence divergence indicator in the daily chart is showing signs of bulls losing traction.

So, if the stock declines because of these reasons, it can drop towards the support at ₹410. Taking these factors into account, rather than initiating fresh positions at the current level, traders can either buy with a stop-loss at ₹385 if the price declines to ₹410, or buy with a stop-loss at ₹410 if the price decisively breaks out of ₹430.

On the upside, the stock is likely to advance to ₹450. The subsequent resistance is at ₹470.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on August 23, 2020
This article is closed for comments.
Please Email the Editor