Technical Analysis

Weekly Trading Guide: RIL inches up from a critical level

Akhil Nallamuthu | Updated on December 30, 2019 Published on December 29, 2019

SBI (₹337.2)

The bull trend in the stock of SBI is struggling to carry the momentum as the price seem to be stuck between ₹325 and ₹340 for quite some time. It is traversing across the 21-day moving average, which is at ₹331, which means there is no clear trend. Thus, the stock must move out of this price band to confirm the next leg of the trend. But since the support at ₹325 is considerably strong, the stock can be approached with a bullish bias until the price stays above that level. The 23.6 per cent Fibonacci retracement level of the previous bull trend coincides with ₹325, making the support significant. Even though the daily relative strength index is staying above the midpoint level of 50, it is visibly flat. Also, the moving average convergence divergence is flat, unable to hint the upcoming trend. From a trading perspective, rather than buying at current levels, traders can either buy when the price moderates to ₹330 or when the price decisively breaks above ₹340. Place the stop- loss at ₹320. The immediate resistance is seen at ₹351, its prior high. The resistance above that level is at ₹362.

ITC (₹236.9)

The stock of ITC declined through the past week, but remains to trade between two key levels at ₹235 and ₹247.5. The price action indicates a bearish bias, and the major trend continues to be bearish. The stock faced resistance at ₹242 levels, where the 21-day moving average and the 23.6 per cent Fibonacci retracement level of the previous bear trend coincide. The daily relative strength index is exhibiting a negative bias. Though the major trend of the stock is bearish, one should notice that the price is nearing the crucial support level at ₹235. The stock has already bounced thrice from that level this year and so it can be expected to arrest the downtrend. Also, there could be some short-covering. Thus, fresh short positions should be initiated only if the stock closes below ₹235 on a daily basis. However, approaching from a risk-reward perspective, traders are recommended to create buy positions on the back of the support at ₹235. Place a tight stop-loss, as the stock might invite more bears below ₹235. The potential target levels are at ₹242 and ₹247.5.

Infosys (₹736.9)

Even after breaking out of a range between ₹690 and ₹725, the stock looks sluggish. It has been oscillating within a tight range between ₹725 and ₹737 for the past two weeks. But the stock can be viewed with a positive bias until it trades above ₹725. Corroborating this, the 21-day moving average has decisively crossed over the 50-day moving average. Also, the relative strength index and the moving average convergence divergence indicator in the daily chart are supporting the bullish view. However, a prolonged consolidation can put the bulls under risk. If the stock continues to consolidate, it might result in profit-booking, dragging the stock lower. From a trading perspective, one can initiate fresh long positions on declines. While the initial stop-loss can be placed at ₹700, raise it with a span of 1.5 times the daily ATR (Average True Range) as the stock appreciates. The first target can be at the resistance level of ₹760. The 61.8 per cent Fibonacci retracement coincides with that price, making it an important level. On further appreciation, the stock can advance to ₹800.

RIL (₹1,542.3)

The stock of Reliance Industries broke below the critical support at ₹1,534 last week. The price has also slipped below the 21-day moving average, opening the door for a further decline. But the stock managed to close the week above ₹1,534, providing some hope for the bulls. It rebounded from ₹1,510, where the 23.6 per cent Fibonacci retracement of the previous bull trend coincides with the 50-day moving average. However, there are certain bearish indications. In addition to bearish divergence, the daily relative strength index has dipped below 50, a bearish indication. The moving average convergence divergence indicator is showing a downtick, adding to the weakness of the stock. Since ₹1,510 is a considerable support, traders are advised to initiate fresh short positions only if the stock closes below that level on a daily basis. However, traders with a higher risk appetite can buy the stock on declines until it decisively breaks below ₹1,510, and place a fixed stop-loss at ₹1,485. On the upside, the stock will face a hurdle at ₹1,575, above which it can retest its lifetime high at ₹1,617.5.

Tata Steel (₹469.5)

The stock of Tata Steel gained marginally during the past week, but failed to decisively break above the resistance band between ₹460 and ₹470. At ₹470 lies the 61.8 per cent Fibonacci retracement level of the previous bear trend. The daily trading range has been narrowing, an indication of a loss in momentum. The daily relative strength index, though continues to show fresh uptick, has entered the over- bought territory. Thus, the possibility of a temporary price correction cannot be ignored, though the stock may not witness a trend reversal. On the other hand, the moving average convergence divergence in the daily chart continues to show good bullish momentum as it has extended further into the positive territory. Hence, from the perspective of trading, it can be approached in two ways. Traders can either initiate fresh long positions if the stock decisively breaks above the resistance band with a stop-loss at ₹445, or buy the stock if the price softens to ₹440 with a stop-loss at ₹425. The potential targets on the upside are at ₹495 and ₹515.

Published on December 29, 2019
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