Technical Analysis

Weekly trading guide: SBI bounces off an important base

Akhil Nallamuthu | Updated on May 31, 2020 Published on May 31, 2020

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SBI (₹161.3)

The stock of SBI appreciated last week and posted a weekly gain of nearly 7 per cent after declining during the preceding three weeks. It rallied on the back of the support at ₹150. There are a few indications in favour of the stock, which hint at further extension of the rally.

The daily relative strength index, though below the midpoint level of 50, is showing a sharp uptick and the moving average convergence divergence indicator in the daily chart is attempting to turn its trajectory upwards, having stayed flat for the past two weeks. However, the price remains below both 21- and 50-day moving averages.

Also, ₹165 is a notable resistance where the 21-day moving average coincides. Hence, despite positive indications, traders can hold back fresh long positions until ₹165 is breached. Go long with stop-loss at ₹150 if the stock rallies past ₹165.

Above that level, the price might rise towards the resistance at ₹175, where 38.2 per cent Fibonacci retracement of the previous downswing coincides. The subsequent resistance is at ₹182 — the 50-day moving average.

ITC (₹197.3)

Maintaining the bullish momentum, the stock of ITC posted a gain of about 6 per cent last week. The stock, which was largely sluggish throughout the week, rallied on Friday, closing the week at ₹197.3.

It, however, stopped short of breaching the critical resistance of ₹200. At this level lies the 50 per cent Fibonacci retracement level, making it more significant. Nevertheless, the stock will be biased upwards as long as it remains above the important level of ₹175. In the daily chart, the price has formed a higher high — a bullish indication.

Corroborating the positive inclination, the daily relative strength index has been moving up in tandem with the stock price; it also stays above the midpoint level of 50. The moving average convergence divergence indicator in the daily chart is on an upward trajectory and has entered the positive zone.

Since ₹200 is a strong resistance, traders can initiate fresh longs on the stock if it decisively breaches that level. The stop-loss can be placed at ₹185. The potential near-term targets can be ₹208 and ₹216.

Infosys (₹691)

The stock of Infosys was largely unchanged last week. It closed at ₹691 compared with the previous week’s close of ₹692.3. As a result, the stock stays within the range of ₹650-700, within which it has been oscillating for little over a month.

So, the next leg of trend will remain uncertain as long as it stays within the consolidation range even though the stock price is above the 21-day moving average. As the stock is in a sideways trend, the relative strength index, though above the midpoint level of 50, is flat.

Also, the moving average convergence divergence indicator in the daily chart is largely flat; however, it lies in the positive region and slightly points upwards. Though this can be taken as a bullish indicator, along with the fact that the price is above the 21-day moving average, the stock should break out of the resistance at ₹700 to establish an uptrend.

So, traders can remain on the sidelines until the stock moves out of the range. The resistance levels above ₹700 are at ₹725 and ₹760, whereas the support levels below ₹650 are at ₹615 and ₹600.

RIL (₹1,464.4)

The stock of Reliance Industries ended last week marginally higher at ₹1,464.4 against the previous week’s close of ₹1,431.5. The price action remains sluggish and now there is a clear lack of trend after having rallied for the past two months.

The stock is currently hovering around the 21-day moving average, where the 23.6 per cent Fibonacci retracement of the previous trend coincides. While ₹1,500 can be a strong resistance on the upside, the stock has a substantial support at ₹1,400.

As the stock charts a sideways path, the daily relative strength index is flat; but it stays above the midpoint level of 50. The moving average convergence divergence indicator in the daily chart, though in the bullish territory, has been in a downward trajectory for the past two weeks.

Given the above indications, the next leg of trend cannot be confirmed until it breaches either ₹1,400 or ₹1,500 and, therefore, traders can hold back fresh positions. Above ₹1,500, the key hurdles are at ₹1,615 and ₹1,700. Whereas, below ₹1,400, the supports are at ₹1,330 and ₹1,250.

Tata Steel (₹295.2)

The stock of Tata Steel witnessed a considerable rally last week, gaining nearly 8 per cent. It marked an intra-week high of ₹298.6 before closing the week at ₹295.2. Thus, the stock was unable to breach the resistance at ₹300, and stays within the range between ₹250 and ₹300.

The stock has been fluctuating between these levels for the past three months. But now there are a few bullish indications hinting at a potential rally beyond ₹300. The daily relative strength index is above the midpoint level of 50 and has been rising along the stock price.

The moving average convergence divergence indicator in the daily chart, which has been in an upward trajectory, has entered the positive territory. Also, the 21-day moving average is attempting to cross over the 50-day moving average, a bullish indication.

Whatsoever, the stock is facing a strong roadblock at ₹300. So, traders can buy the stock if it breaks out of the resistance at ₹300. The stop-loss can be placed at ₹280. On the upside, the price might advance to ₹325 and ₹345.

Published on May 31, 2020
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