Technical Analysis

Weekly trading guide: RIL might witness minor correction

Akhil Nallamuthu | Updated on December 01, 2019 Published on December 01, 2019

SBI (₹341.8)

The stock of SBI advanced in past week and broke beyond a couple of resistances at ₹335 and ₹347, and registered an intra-week high of ₹351. But on Friday, the stock softened, and closed at ₹341.8. We can observe in the weekly chart that the price range between ₹347 and ₹351 has acted as a resistance in the past, arresting the uptrend. So, even though the outlook for the stock remains positive and it has a strong base at ₹335, it will be a considerable challenge for it to pass through those levels on the upside. The bullishness in the stock is corroborated by the daily relative index as it shows good strength in the prevailing upswing. However, though the moving average convergence divergence indicator looks positive, it exhibits some weakness. Thus, there are factors that work for and against the stock. So, from a trading perspective, you have to apply appropriate risk-management steps. If the stock manages to rally beyond ₹351, it may rise to ₹364, but if it witnesses a correction, it can come down to ₹335. The support below that level is at ₹322.

ITC (₹246.4)

Over the last week, the stock of ITC was held between two key levels — ₹245 and ₹250. However, the price movement suggests a bearish bias; but for a further decline, the price should decisively break below ₹245 . The bearish bias is further validated by the moving averages as the price continues totrade below both 21- and 50-DMAs. The daily relative strength index remains below the midpoint level of 50, another condition that goes against the stock. But there was no noticeable downtick last week. The moving average convergence divergence indicator also points downwards and remains in the negative territory. Considering these factors, the probability of the stock weakening further is high. However, fresh short positions should be initiated only if the price breaches the support at ₹245. Below that level, the support comes in at ₹242 and ₹234.05 — its 52-week low. On the other hand, a prolonged sideways movement will result in bears losing steam and could result in short covering. On the upside, the stock will face resistance at ₹250 and ₹258.

Infosys (₹696.3)

The recovery in the stock of Infosys looks to have stalled as its price continues to consolidate between ₹690 and ₹725. Though ₹690 is acting as a good base, the prolonged consolidation might not favour the stock. The price is traversing across the 21-day moving average, unable to establish a trend on either side; but the stock remains below the 50-day moving average. The daily relative strength index and the moving average convergence divergence indicator are flat following the price action of the stock, unable to hint any direction. So, the next leg of the trend can be confirmed only if the stock breaks either of the limits of the range. If the stock breaks out of ₹725, the recovery will lift the price to ₹760. This is a critical level as the 61.8 per cent Fibonacci retracement of the previous bear trend coincides with the 50-day moving average. A further appreciation will take the stock price to ₹800. Alternatively, if the stock breaks down from the range, it could slump to ₹665, below which the support is at ₹620.

RIL (₹1,551.1)

The stock of Reliance Industries gained in the first half of the past week when it registered a fresh lifetime high of ₹1,584.15. However, on Friday, the stock declined, giving up the entire week’s gain. This could be because of profit-booking, and there are chances for it to get extended. This is indicated by the daily relative strength index, which, unlike the price, has failed to form a higher peak. The weakness in the index could develop into a bearish divergence, an indication of a trend-reversal. The moving average convergence divergence indicator, too, exhibit weakness. However, the overall trend remains bullish and unless the stock breaks below ₹1,500, it can be approached with a bullish bias from a medium- term perspective. The support at ₹1,500 is also coincided by the 21-day moving average, making it more significant. If the stock gains bullish momentum and appreciates, it will most likely retest the lifetime high at ₹1,584.15, above which the resistance is at ₹1,617. If the stock falls from the current level, it has a support at ₹1,530. Below that level lies the strong support at ₹1,500.

Tata Steel (₹427.5)

The stock of Tata Steel managed to breakout of the key resistance at ₹415 last week, opening the door for further strengthening. The breakout, following a strong bounce from the 21-day moving average, has also resulted in a higher peak in the daily chart, a bullish indication. The intra-week high registered last week at ₹434.3 is also the stock’s four-month high. Though the momentum seems to be favourable for the stock, you need to be wary of certain indications. Unlike the price, the daily relative strength index has failed to form a higher high, hinting that the bulls may be losing steam. The moving average convergence divergence indicator is unable to back the bullish price action. If the stock, on the back of a breakout, continues to advance from the current level, it will most probably test the resistance at ₹440. This level is coincided by the 61.8 per cent Fibonacci retracement level. Above that, the resistance is at ₹462. On the other hand, if the stock falls back below ₹415, the support is at ₹400.

Published on December 01, 2019
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