Technical Analysis

Weekly trading guide: SBI fails to sustain rally

Akhil Nallamuthu | Updated on August 16, 2020

SBI (₹196.5)

The performance of the stock of SBI in the first half of last week looked very promising as the price went past the critical resistance of ₹200. It even closed at ₹203.3 on Wednesday, a potential indication of good bullish momentum. However, the stock witnessed an immediate reversal, thereby weakening below ₹200 by the end of the week.

While the price staying above the 21-day moving average is a positive sign, the stock needs to retain its strength and hold above ₹200 for the bulls to gain traction. Until then, the scrip cannot establish a sustainable uptrend; a steep fall from current levels is though highly unlikely. The price level of ₹190 can be a good support.

Supporting the upward bias, the moving average convergence divergence indicator in the daily chart has turned its trajectory upward and the daily relative strength index remains in the bullish region.

Considering the above factors, traders can hold back fresh positions and go long once the stock decisively breaks out of the key hurdle at ₹200. A breach of ₹200 can take it to ₹218.

ITC (₹196.4)

The stock of ITC, after beginning last week with a gap-up, gained momentum and advanced to a five-week high of ₹207.7 on Tuesday. But it gave up almost all the gains and declined towards the end of the week and closed on a flat note on weekly basis.

As a result, the stock has fallen back to the price range between ₹192 and ₹202, within which it has been trading for over a month. The stock’s move last week was its third attempt to rally above the critical level of ₹200. Resultantly, the stock seems to have formed a broader sideways trend between ₹192 and ₹210.

So, until the stock stays within this price range, the next leg of trend will remain uncertain. Hence, traders can remain on the sidelines until either ₹192 or ₹210 is breached. A breakout of ₹210 can take the stock to ₹218 and possibly to ₹225.

On the other hand, if the stock slips below the support at ₹192, it can weaken to ₹180. The support below that level is at ₹175.

Infosys (₹953.6)

Extending the consolidation phase, the stock of Infosys traded in a narrow range between ₹940 and ₹965 last week. Notably, the stock has been trending sideways in a broader price band between ₹940 and ₹986 for the past two weeks.

After a strong rally, it is usual for any stock to consolidate. Infosys will remain on an uptrend until it stays above the important support of ₹900. The 23.6 per cent Fibonacci retracement level of the previous upswing lies at ₹914; this, along with ₹900, forms a considerable support band.

Since the stock is consolidating, the relative strength index and the moving average convergence divergence indicators in the daily chart has come off their peaks; however, both are in their respective bullish zones. As the overall trend is pointing upwards and there are no concrete signs of bearish reversal, the stock is likely to move past the resistance at ₹986.

But traders can initiate fresh long positions post the breakout of that level. The stop-loss can be at ₹940. The stock is likely to rise to ₹1,040, though the nearest hurdle is at ₹1,000.

RIL (₹2,113.8)

The stock of Reliance Industries traded within the range between ₹2,100 and ₹2,160 during the past week. Nonetheless, the price continues to stay above the support of ₹2,100 where the 21-day moving average lies. The stock still retains the higher high-higher low price pattern in the daily chart.

And more importantly, the positive outlook will remain intact until the scrip stays above the psychological level of ₹2,000. Also, the 23.6 per cent Fibonacci retracement level coincides at ₹2,000. However, the relative strength index and moving average convergence divergence indicators in the daily chart are flat on the back of the recent sideways price action. But both lie in their respective positive territories.

Considering the aforementioned factors, the likelihood of the stock regaining bullish momentum is high as long as it sustains above ₹2,000. So, traders can retain the positive view and buy the stock in dips with a stop-loss at ₹1,980.

On the upside, the stock is likely to breakout of ₹2,200 and possibly rise to ₹2,250. Beyond that level, it can rally to ₹2,300.

Tata Steel (₹418.5)

The stock of Tata Steel has been advancing since the last week of May. Continuing with the trend, the stock rallied in the past week as well. It made a six-month high of ₹430.8 on Friday before closing the week a bit lower at ₹418.5. But the overall trend is up.

The price is above the important level of ₹400 and lies well above the 21-day moving average. Also, the stock has been consistently forming fresh highs for the past several weeks and posted gains for three weeks in a row. These factors indicate considerable bullish momentum.

Moving in tandem with the stock price, the daily relative strength index has gone up and made a fresh peak. The moving average convergence divergence indicator in the daily chart is tracing an upward trajectory. Both the indicators hint at further strengthening of the stock.

On the back of the above favourable affirmative indications, traders can buy on declines with a stop-loss at ₹385. From the current levels, the stock is likely to retest ₹430. Above that level, it can rally to ₹450.

Published on August 16, 2020

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