Technical Analysis

Weekly trading guide: RIL breaches a key hurdle

Akhil Nallamuthu | Updated on April 12, 2020

SBI (₹187.7)

The stock of SBI opened with a gap-up, but could not accelerate further; it was trading flat throughout the week. After registering a loss for six consecutive weeks, the stock closed with a marginal gain last week.

But the price remains below the 21-day moving average and the stock should breach the important hurdle at ₹200 to establish a sustainable rally. Until then, it might face selling pressure as the major trend remains bearish.

But the previous low — its 52-week low at ₹173.5 — can act as a good support. Considering the aforementioned factors, the stock is not likely to trend until it breaches either ₹173.5 or ₹200. Affirming the lack of trend, the daily relative strength index has been flat. The moving average convergence divergence indicator in the daily chart is hinting a shift in momentum in favour of the stock.

As the stock is held between two key levels, traders can stay on the fence until the stock breaches either of those levels. Above ₹200, the resistance is at ₹215, whereas below ₹173.5, the stock might fall to ₹160.

ITC (₹185.2)

The stock of ITC closed higher last week, and, thus, the price has sustained above the critical level of ₹175 for two weeks in a row. This level is important as it coincides with the 38.2 per cent Fibonacci retracement level of the previous downtrend.

The stock also remains above the 21-day moving average, which is currently at ₹164.1, giving it a bullish bias. Also, there is a confirmed double bottom pattern in the daily chart, which signals a bullish reversal.

Corroborating the positive bias, the daily relative strength index is in a considerable upward trajectory and it stays above the midpoint level of 50. The moving average convergence divergence indicator in the daily chart, too, is indicating a good upside momentum.

Hence, the stock is likely to extend the gain in the coming days. Traders can thus initiate fresh long positions in the stock on declines with a stop-loss at ₹170. While ₹187 can act as a resistance, the stock can be expected to break out of that level on the back of the prevailing bullish momentum.

Above that level, the stock can appreciate to ₹200.

Infosys (₹636.2)

The stock of Infosys opened with a gap-up and rallied on the upside. But after facing a hindrance near ₹655 — the 50 per cent Fibonacci retracement level of the previous downtrend — the price moderated. Notably, the price has gone back above ₹600 and the 21-day moving average — a bullish indication.

But despite the stock gaining last week, the daily relative strength index has been flat and remains below the midpoint level of 50. The moving average convergence divergence indicator, which is charting an upward trajectory, is showing signs of the upside momentum losing traction.

While there is no clear indication of a trend by the oscillators, the price action in the daily chart shows that the stock is treading between two levels at ₹585 and ₹665. Until the stock remains within these levels, the next leg of the trend cannot be confirmed.

If the stock can extend the gain and break out of ₹665, it can rally towards ₹700, where it coincides with the 61.8 per cent Fibonacci retracement level.

But if the stock slips below ₹585, it can decline to the immediate support at ₹545.

RIL (₹1,219.9)

The stock of Reliance Industries might have turned the near-term trend bullish. After breaking out of the resistance at ₹1,120, it strengthened and rallied past the crucial resistance at ₹1,200. The stock has thus posted a weekly gain for a second consecutive week, and the price is now above the 21-day moving average — a bullish indication.

The price action in the daily chart shows a higher high-higher low pattern, adding to the upward bias. The daily relative strength index has risen above the midpoint level of 50. Also, the moving average convergence divergence indicator is signalling a clear upside momentum.

Since there are clear bullish indications, traders can go long in the stock on dips with a dynamic stop-loss. While ₹1,100 can be the initial stop-loss, shift it upwards with a gap of 1.5 times the average true range as the stock moves up.

The immediate resistance is at ₹1,270; this level coincides with the 50-day moving average and the 61.8 per cent Fibonacci retracement level of the prior downtrend. Beyond that level, the stock could advance to ₹1,300 and ₹1,365.

Tata Steel (₹284.8)

The stock of Tata Steel witnessed a considerable rally last week; however, the price remains within the key levels of ₹250 and ₹310. Notably, the 23.6 per cent Fibonacci retracement level is at ₹310, making it a considerable hurdle.

The stock, thus, extends the consolidation phase, and unless it breaches either of the limits of the range, the next leg of the trend cannot be confirmed. Currently, the stock is hovering near the 21-day moving average.

The daily relative strength index has inched up, but remains below the midpoint level of 50. The moving average convergence divergence indicator is signalling a positive bias.

Ideally, traders can hold back fresh positions until the stock moves out of the range. A breakout of ₹310 can potentially lift the price to ₹325 and ₹345 — the 38.2 per cent Fibonacci retracement level; if the stock slips below ₹250, the support levels can be spotted at ₹240 and ₹225.

Despite the consolidation phase, traders with a high risk appetite can buy the stock with a tight stop-loss, if the price breaks out of a hurdle at ₹292.

Published on April 12, 2020

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