Technical Analysis

Weekly trading guide: RIL tests a crucial support

Akhil Nallamuthu | Updated on October 18, 2020 Published on October 18, 2020

SBI (₹195.9)

The SBI stock, after opening on a flat note last Monday, rallied and registered an intra-week high of ₹206. However, the scrip was unable to extend the rally and largely remained in a sideways trend for the rest of the week — oscillating between ₹192 and ₹200.

As long as the price remains below ₹200, the rally might not be sustainable. But there are positive signs for the stock. The daily relative strength index, though stays flat, lies above the midpoint level of 50. The moving average convergence divergence indicator has been moving upwards and is now hovering in the neutral region, but the slope is positive.

Also, the stock remains above the 21-day moving average, which is currently at ₹190. Considering the above factors, traders can remain bullish-biased until the price is above ₹190, but initiate fresh long positions only if the stock decisively breaks out of ₹200. The stop-loss can be placed at ₹190.

While ₹206 can be a minor hurdle, a breakout of ₹200 is likely to take the stock past that level and possibly appreciate towards resistances at ₹212 and ₹218.

ITC (₹165.7)

The stock of ITC opened with a gap-up last week and rallied, but the bulls faced a roadblock at ₹175, from where the stock began to decline. Also, the 21-day moving average has been acting as a resistance for the past two weeks, and until the price remains below that level, the stock can be inclined to a downtrend.

Though the price action for the past couple of weeks shows that the stock has been moving in a sideways trend — between ₹165 and ₹175 — the major trend remains bearish as it has been on a decline since mid-August. This means the likelihood of the price slipping below ₹165 is high.

Supporting the negative bias, the relative strength index and the moving average convergence divergence indicators on the daily chart remain in their respective bearish territories. On the back of the above factors, traders can initiate fresh short positions on rallies with a stop-loss at ₹175.

The stock will most likely decline to ₹157 in the near term. A breach of this level can drag it towards a support at ₹146. The resistance above ₹175 is at ₹181.

Infosys (₹1,127.5)

The stock of Infosys opened with a gap-up and rallied during the first half of the week. As a result, it registered a fresh lifetime high of ₹1,186 last Thursday. However, the stock reversed during the same session and witnessed a sharp fall in price.

Nevertheless, it managed to close above the support of ₹1,090. Also, the overall trend is bullish and the likelihood of bulls regaining traction is high until the stock stays above ₹1,090. Corroborating the bullish view, the daily relative strength index stays above the midpoint level of 50.

The moving average convergence divergence indicator on the daily chart is charting the upward trajectory and remains in the bullish zone. Considering the aforementioned factors, traders can be bullish and initiate fresh long trades on declines with a stop-loss at ₹1,060 — the 21-day moving average.

On the upside, the stock is likely to retest the lifetime high of ₹1,186. A breakout of this level can lift the stock to ₹1,220. On the downside, ₹1,090 is a critical support, a break below which can turn the outlook negative.

RIL (₹2,175.8)

The stock of Reliance Industries witnessed volatile price action last week. But at a broader level, the stock has been moving in a sideways trend between ₹2,175 and ₹2,300 for over a month.

It tests the support of ₹2,175, where the 50-day moving average lies. Hence, this level is critical — a decisive breach of this level can bring in more sellers, potentially resulting in a significant fall. The stock has formed a lower high on the daily chart, and a break of ₹2,175 will result in a lower low, adding to the bearish bias.

Corroborating the negative view, the daily relative strength index has slipped below the midpoint level of 50 and is pointing downwards. The moving average convergence divergence indicator on the daily chart is showing a fresh down-tick. Traders can take a bearish view on the back of the above reasons.

But since ₹2,175 is a support, initiate fresh short positions if the stock falls below it; the stop-loss can be at ₹2,275. The support below ₹2,175 can be spotted at ₹2,070. Subsequently, the psychological level of ₹2,000 is the key support.

Tata Steel (₹393.8)

The stock of Tata Steel, which had been largely moving in a sideways trend between ₹370 and ₹387, broke out of the upper band of the range on Friday. This has opened the door for further strengthening.

Also, the price lies above the 21-day moving average, retaining the positive outlook, and has crossed over the 38.2 per cent Fibonacci retracement level of the prior downtrend. Substantiating the positive outlook, the daily relative strength index is showing a fresh uptick and has moved above the midpoint level of 50.

The moving average convergence divergence indicator on the daily chart has turned its trajectory upwards. Thus, the stock seems to have resumed its move northwards after witnessing a price moderation. Given the above factors, traders can buy the stock on declines with a stop-loss at ₹370.

On the upside, ₹400 — the 50-day moving average — can be a hurdle. But the stock will most likely breach that level and advance to ₹420. Above that level, the stock can face a resistance at ₹440.

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Published on October 18, 2020
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