Technical Analysis

Weekly trading guide: SBI hovers at key resistance

Akhil Nallamuthu | Updated on July 12, 2020 Published on July 12, 2020

SBI (₹195.6)

The stock of SBI rallied last week after a flat open, and closed at ₹195.6 as against its preceding week’s close of ₹184.7. However, it was unable to crack the resistance at ₹200 after registering a high of ₹202.5 on Friday.

Nevertheless, the stock continues to exhibit a bullish bias as it has been forming higher lows on the daily chart, and lies well above the 21-day moving average. The price action since late March shows that it has formed an inverted head and shoulders pattern with neck-line at ₹200.

So, a solid breach of that level can turn the trend bullish. Supporting the bulls, the daily relative strength index has been moving up along with the stock price. The moving average convergence divergence indicator on the daily chart, which is in the positive territory, is showing fresh signs of upward momentum.

Despite bullish signs, the resistance of ₹200 still stays valid and so traders can buy the stock with a stop-loss at ₹180 if it breaks out of that level. Above ₹200, it can possibly rally to ₹210 and ₹218.

ITC (₹194.3)

Post a gap-down open, the stock of ITC was moving between ₹194 and ₹200, where it ended the week at ₹194.3. So, the price is now below the important level of ₹200, hinting that the bulls might have started losing ground. At ₹194 lies the 21-day moving average, making it a substantial support.

Nonetheless, any further extension of the sideways trend will increase the possibility of a downtrend, at least in the short term. The daily relative strength index indicates that the uptrend is losing strength by showing a fresh downtick. It now lies near the midpoint level of 50, and if the price slips below ₹194, it will most likely drag the indicator into the bearish territory.

This could mean that the bears are gaining considerable momentum. The moving average convergence divergence indicator is turning its trajectory downward. As the stock can be inclined to downtrend until it remains below ₹200 and since there are signs of weakness, traders can short the stock with a stop-loss at ₹205 if it breaches the support at ₹194.

The subsequent supports are at ₹186 and ₹182.

Infosys (₹781.8)

Extending the rally, the stock of Infosys gained last week and ended at ₹781.8 versus the preceding week’s close of ₹762.7. With this, the stock has closed in the green for four straight weeks, indicating a considerable bullish momentum.

Also, the stock registered a fresh four-month high of ₹796.9 last week, thereby continuing to make higher peaks on the daily chart. Corroborating the upward bias, the daily relative strength index is showing a fresh uptick and remains above the midpoint level of 50. The moving average convergence divergence indicator on the daily chart, which is in the positive territory, continues to display a strong bullish trend.

The stock has a support at ₹760 and until it stays above this level, it can remain bullish-biased. However, on the upside, the stock faces a substantial roadblock at ₹800. So, traders can initiate fresh long positions if the stock breaches the hurdle at ₹800. The stop-loss can be placed at ₹750.

Above ₹800, the stock will most likely retest the one-year high at ₹847, above which the rally could take the stock to ₹900.

RIL (₹1,878)

The stock of Reliance Industries, which opened with a gap-up last Monday, went on to consolidate between ₹1,800 and ₹1,860 for most part of the week. But on Friday, the stock gained traction and rallied to register a fresh life-time high of ₹1,884.6 before ending the session at ₹1,878.

So, the stock continues to form higher highs and higher lows, indicating a strong momentum in favour of the stock, and the major trend is bullish. Though the relative strength index and the moving average convergence divergence on the daily chart remains in their respective bullish territories, both the indicators seem to hint that the uptrend might be gradually losing momentum.

Considering the aforementioned factors, while the traders can go long since the trend is upwards, the stop-loss need to be dynamic to protect against any sudden reversal in trend. That is, the initial stop-loss can be at ₹1,730 but shift it upwards with a gap of 1.5 times the daily average true range once the stock decisively breaks out of ₹1,900.

Above this level, the stock might rise to ₹2,000.

Tata Steel (₹338.7)

The stock of Tata Steel, which rallied after opening marginally lower, faced a resistance at ₹350, from where the price moderated. Notably, the stock declined from the same price level last month, making it a strong hindrance.

Even as the price action in the daily chart displays a bullish bias, the stock should breach ₹350 to establish a sustainable rally. Supporting the bullish bias, the daily relative strength index remains above the midpoint level of 50 and the moving average convergence divergence Indicator on the daily chart, though stays flat, is in the bullish zone.

Also, the price is well above the 21-day moving average at ₹325, indicating a positive momentum. Until the price remains above that level, the stock can be inclined to uptrend. Considering these factors, traders can buy the stock with a stop-loss at ₹325 if it rallies past the crucial level of ₹350.

A breakout of ₹350 can turn the medium-term trend bullish, leading to a rally where the stock can appreciate to ₹370 and then possibly to ₹385.

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Published on July 12, 2020
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