Technical Analysis

Weekly trading guide: ITC rebounds from a crucial support

Akhil Nallamuthu | Updated on December 15, 2019

SBI (₹332.5)

The uptrend in the SBI stock since the beginning of October witnessed a correction after it registered a four-month high of ₹351 in late November. The correction resulted in the price dropping to ₹308, where the 38.2 per cent Fibonacci retracement level of the prior bull trend lies. The stock took that level as a support and bounced sharply the past week. Also, the daily relative strength index is showing an uptick, and it has crossed above the midpoint level of 50. Thus, the bull trend seems to have resumed and the outlook is positive for the script. However, one needs to be watchful of the resistance in the band between ₹332 and ₹335. From a trading perspective, rather than creating fresh long positions at the current level, one can buy the stock after it closes above ₹335 on a daily basis or if it moderates to ₹325. The initial stop-loss can be placed at ₹315; start shifting it upward with a gap of 1.5 times the ATR (average true range) as the stock advances. The key resistances on the upside are at ₹350 and ₹362.

ITC (₹241.6)

The stock of ITC has been on a decline since the beginning of November. The decline was stopped at the support of ₹235. This level has been acting as a strong support since August. The stock recovered and ended the week at ₹241.6, forming a reversal candlestick pattern, ie, a hammer in the weekly chart. However, the stock at the current level is facing a stiff resistance at ₹243. This level also coincides with the 23.6 Fibonacci retracement level of the previous downtrend, making the resistance more significant. Hence, for the stock to perform a sustainable rally, the price should close above ₹243 on a daily basis. So, from the perspective of trading, one can approach the stock in two ways. One, initiate fresh long positions if the stock closes above ₹243 and place the stop-loss at ₹238. Two, buy the stock if it falls to ₹235 as that level is a strong support and the risk-reward ratio is highly favourable for long positions; place the stop-loss at ₹230. The potential short-term targets on the upside are at ₹247.5 and ₹252.

Infosys (₹711.3)

The stock of Infosys continues to trade along the sideways trend. Since the beginning of November, the stock has been held between two key levels at ₹690 and ₹725. As the consolidation phase has been in place for quite some time, the oscillators, ie, the moving average convergence divergence and the relative strength index in the daily chart, are unable to hint any direction. Moreover, the 21- and the 50-day moving averages have converged to the same price level due to lack of trend. Hence, the next leg of the trend can be confirmed only if the stock gets out of this range; traders are advised to stay on the fence until then. If the stock breaks out of the upper boundary of the range at ₹725, the rally will lead the price towards ₹760. The 61.8 per cent Fibonacci retracement of the previous bear trend coincides with this level, making it a considerable resistance. Any further appreciation will take the stock to ₹800. On the other hand, if the stock breaks below the lower boundary of the range, it could decline to ₹665. Below that level, the support is at ₹620.

RIL (₹1,582.9)

The recent uptrend in the stock of RIL, that began in August, seems to have taken a pause. The price has been consolidating for the past three weeks. However, there are certain indications that the stock might witness a downward movement. The daily relative strength index has formed a bearish divergence, a negative indication; the moving average convergence divergence indicator also exhibits a negative bias. But by observing the price action, we can find that the stock has formed a strong base at ₹1,534, and as long as the price stays above this level, the script can be approached with a bullish inclination. Also, the stock remains above the 21-day moving average, maintaining the short- term positive outlook. Hence, from a trading perspective, one can buy the stock when it retests ₹1,534, and place the stop-loss at ₹1,525. The near-term target can be at ₹1,610. If the stock breaks out the 52-week high at ₹1,614.45, it might appreciate to ₹1,665. Strictly adhere to the stop-loss as a break below ₹1,534 could reverse the trend to bearish.

Tata Steel (₹428.4)

The recent bull trend in the stock faced a hurdle, and it pulled back twice in the past one month. But the stock managed to restrict the declines, forming higher lows at ₹383.1 and ₹389. Last week, the stock went up and closed at ₹428.4. It also closed above the 21-day moving average, corroborating the bullish bias. The daily relative strength index is showing an uptick and so is the moving average convergence divergence indicator. All these factors indicate a positive momentum being built up in the stock. However, it faces a resistance at ₹434, where the previous rally was capped. Hence, this is an important level, and a close above it will be necessary to carry over the momentum. Given the scenario, traders are recommended not to initiate fresh short positions as the stock is in a bullish momentum. Wait for the stock to decisively breach ₹434, and initiate long positions with a stop-loss at ₹405 with the potential target at ₹460. As the stock advances, move the stop-loss with a span of 1.5 times the ATR (average true range).

Published on December 15, 2019

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