Technical Analysis

Weekly Trading Guide: RIL breaches series of supports

Akhil Nallamuthu | Updated on February 02, 2020 Published on February 02, 2020

SBI (₹302.6)

Last week, the stock of SBI declined and breached an important support at ₹310. The price broke below the range between ₹310 and ₹340, within which it had been trading for the past one month. The outlook for the stock has turned negative. The 21-day moving average (DMA) has crossed below the 50-DMA, supporting the bearish view. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator in the daily chart indicate further weakness.

 

 

While the RSI is now below the mid-point level of 50, the MACD is in the bearish region. Though the trend has turned negative, ₹300 seems to act as a good support. So, traders are advised to short only if the price goes below ₹300 with a stop-loss at ₹315. If the stock breaks below ₹300, it will most likely decline to the support at ₹286, where it coincides with the 61.8 per cent Fibonacci retracement of the previous bull trend. Below that level, a support can be spotted at ₹280 levels.

ITC (₹219)

Following the broad market sentiment, the stock of ITC tumbled last week and took out a critical support at ₹235 and ₹223. It faced the 21-DMA resistance at the ₹237 level where the price began to fall. On Friday, the stock registered its new 52-week low at ₹215.5 before closing the week at ₹219. It closed in the red for the second consecutive week. The daily RSI is showing considerable bear strength and the MACD indicator in the daily chart is in the negative territory — both indicate bearishness. Also, in the daily chart, the stock continues to form consecutive lower lows and lower highs. All these factors hint at further depreciation in stock price in the coming days. However, from the trading perspective, rather than initiating fresh short positions at the current level, sell the stock if the price rises to ₹226 with a stop-loss at ₹236. That way, one can achieve a better risk-reward ratio. While the immediate support for the stock is at ₹212, the subsequent support is at ₹200 levels.

Infosys (₹779.5)

Bucking the trend of the overall market, the stock of Infosys managed to stay flat, indicating good buying interest. It also managed to stay above the support at ₹760, and until the price stays above it, the uptrend will not be under threat. The support at ₹760 is significant as coincides with the 21-day moving average. But noticeably, the stock has not appreciated either, and it has been consolidating between ₹760 and ₹790 for the past two weeks. Also, there is a significant hurdle at ₹800; the price area between ₹790 and ₹800 is a substantial resistance band. There are no indications of a fresh uptrend as the daily RSI remains flat and the MACD indicator in the daily chart shows signs of bulls losing sheen. Traders are thus advised to wait until the resistance band is breached before buying. One can buy the stock at ₹800 with a stop-loss at ₹770. On the upside, the resistance levels beyond ₹800 are at ₹832 and ₹847.

 

RIL (₹1,383.3)

The stock of Reliance Industries (RIL) slumped 9 per cent last week as the overall market witnessed selling pressure, closing with a loss for the second week in a row. The stock breached the key support at ₹1,400. That support is significant as it coincides with the 50 per cent Fibonacci retracement level of the previous bull trend. The 21-DMA has crossed below the 50-DMA, potentially turning the medium-term trend bearish. The downtrend looks strong and the probability of a decline from the current levels is high. The daily RSI is maintaining its downward trajectory and the MACD indicator in the daily chart extends further into the negative region, indicating considerable bearish momentum. Hence, traders can take a bearish view and can short the stock on rallies with a stop-loss at ₹1,460. The nearest support is at ₹1,345 — the 61.8 per cent Fibonacci retracement level of the previous uptrend. Below that level, there is a support band between ₹1,295 and ₹1,310.

 

Tata Steel (₹423.8)

The stock of Tata Steel depreciated last week. It continued its downtrend that began from ₹500; the price has gone below the 38.2 per cent Fibonacci retracement level of the previous uptrend at ₹435. Also, the stock has slipped below the 50-DMA, adding to the bearish outlook. The daily RSI has come down sharply, in tandem with the price, hinting considerable selling pressure. The MACD indicator in the daily chart has entered the bearish region, indicating further weakness. Since there are several negative cues, one can take a bearish view on the stock. Traders are thus recommended to initiate fresh short positions on rallies and place a stop-loss at ₹445. While the primary target can be the support at ₹413, the subsequent support is at ₹390. This level coincides with the 61.8 per cent Fibonacci retracement of the previous uptrend, making it an important level.

 

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Published on February 02, 2020
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