Technical Analysis

Weekly trading guide: ITC remains in sideways trend

Akhil Nallamuthu | Updated on August 30, 2020

SBI (₹224.8): SBI breaks a psychological barrier

On the back of a stellar rally, the stock of SBI posted its biggest weekly gain of about 13 per cent since the first week of June. Crucially, it has breached the psychological level of ₹200 after attempting to do so for several weeks.

The stock, in fact, registered a five-month high of ₹225.9 on Friday before ending the week slightly lower at ₹224.8. Nevertheless, the breakout looks solid and has paved the way for further strengthening.

Supporting the positive outlook, the daily relative strength index, which was flat, is now showing a fresh uptick, and the moving average convergence divergence indicator in the daily chart has begun to chart an upward trajectory. With all these favourable indications, traders can be positive on the stock and go long on declines with a stop-loss at ₹210.

On the upside, while ₹230 can be a minor hurdle, given the bullish momentum, the stock is highly likely to cross over that level and gain towards the subsequent resistance at ₹240. A breach of ₹240 can take the stock to ₹250.

ITC (₹195.5): ITC remains in sideways trend

ITC has been trading within the price band of ₹192 and ₹208 for eight weeks. There are still no signs of build-up in momentum on either side, thus providing little opportunity for traders.

Unless either of these levels are breached, the next leg of trend cannot be confirmed. Following the sideways trend, the 21- and the 50-day moving averages have converged towards each other at around ₹196. The daily relative strength index is hovering around the midpoint level of 50, clearly showing a lack of trend.

Also, the moving average convergence divergence indicator in the daily chart lies in the neutral region. Hence, traders can stay on the fence until the stock breaches either ₹192 or ₹208. If the stock breaches ₹208, it can appreciate to ₹220.

On the other hand, if it weakens and slips below the support of ₹192, it will most likely decline to ₹181 — the 38.2 per cent Fibonacci retracement level of the previous uptrend. A break below ₹181 can potentially drag the stock to ₹174.

Infosys (₹935.2): Infosys exhibits weakness

The stock of Infosys, which was moving in a sideways trend between ₹940 and ₹970 for three weeks in a row, closed below the lower level of the range last Friday. So, the scrip shows a fresh sign of weakness even though the major trend remains bullish.

Notably, until the price stays above ₹900, the intermittent price declines cannot be confirmed as a bearish trend-reversal. But this fresh break outcan result in the stock testing the trend-deciding level of ₹900.

The 23.6 per cent Fibonacci retracement level of the prior rally lies at ₹914, essentially forming a support band along with ₹900. Hence, traders need to approach the stock with caution. Adding to the woes, the relative strength indicator and the moving average convergence divergence indicator in the daily chart have been on a decline, hinting at bulls losing ground.

Considering the above factors, traders can remain on the sidelines until either ₹900 or ₹970 is breached. While the stock can rally to ₹1,040 if it goes past ₹970, a break below ₹900 can pull it down to ₹850.

RIL (₹2,116.1): RIL continues to consolidate

The stock of Reliance Industries has extended the sideways trend for the third week. It has been oscillating between ₹2,070 and ₹2,155 since the beginning of August. The overall uptrend does not seem to be under immediate threat as the scrip manages to stay above the psychological level of ₹2,000.

The 23.6 per cent Fibonacci retracement level of the previous rally coincides at ₹2,000 and the 50-day moving average lies at ₹1,980, making the price band a strong base for the stock. However, a prolonged consolidation at the current level can test the temperament of the bulls.

The daily relative strength index is flat but lies above the midpoint level of 50. Though the moving average convergence divergence indicator looks a bit weaker, it stays on the positive territory.

Hence, traders can wait for the stock to correct to ₹2,000 or break out of ₹2,200, ie, either buy with a stop-loss at ₹1,930 if the price drops to ₹2,000 or buy 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 (₹424.2): Tata Steel retains positive bias

The stock of Tata Steel, which was on a strong uptrend since mid-June, is now facing a considerable resistance at ₹438. Throughout the last week, the stock was trading in a narrow range between ₹422 and ₹438.

A positive sign is that despite facing a substantial resistance, the scrip did not decline. The moving average convergence divergence indicator, which flattened during the week prior to the last, is now pointing downwards.

On the other hand, the relative strength index stays flat. For the uptrend to regain traction, the price should rally past ₹438. Also, the possibility of a minor price correction cannot be ruled out given the current price action. However, ₹410 is a crucial support where the 21-day moving average lies.

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 stock breaks out of ₹430. On the upside, the stock is likely to advance to ₹450 and may be to ₹470.

Published on August 30, 2020

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