Technical Analysis

Weekly trading guide: SBI trades off an important base

Akhil Nallamuthu | Updated on March 22, 2020 Published on March 22, 2020

SBI (₹209.8)

 

The stock of SBI closed the week significantly lower than in the previous week, despite a recovery on Friday. It has closed with a loss for a fourth consecutive week, hinting at persisting downward bias. The price level of ₹200 has been acting as a considerable support throughout the week.

On the upside, ₹230 is a strong resistance. Hence, the stock cannot be expected to trend up until it breaches either ₹200 or ₹230. The moving average convergence divergence indicator in the daily chart remains in the negative zone, hinting at further decline.

But the daily relative strength index, though below 50, is showing potential bullish divergence. Also, it is showing an uptick from the over-sold levels. But the recovery will be sustainable only if the stock breaks out of ₹230. The major trend is bearish. Traders are recommended to stay on the sidelines until the price breaches either ₹200 or ₹230.

Resistance levels above ₹230 are spotted at ₹240 and ₹257 — the 50 per cent Fibonacci retracement level. Its prior low, ₹184.65, can act as a support below ₹200.

ITC (₹175.5)

 

After posting loss for several consecutive weeks, the stock of ITC posted a weekly gain last week. This was due to a strong recovery during the previous couple of trading sessions, when it bounced back from the support at ₹145 levels.

It currently hovers around the 38.2 per cent Fibonacci retracement level of the previous down-swing. The daily relative strength index is showing a sharp uptick but remains below the midpoint level of 50. On the other hand, the moving average convergence divergence indicator in the daily chart, though in the bearish zone, is showing signs of momentum, tilting in favour of the bulls.

But the stock faces a resistance between ₹179 and ₹183. The 21-day moving average is at this price band, making it a significant roadblock. So, traders can consider initiating fresh long positions if the price decisively breaks out of the resistance band. The stop-loss can be placed at ₹174.

The potential near-term targets can be ₹190 and ₹200. Above ₹200, the medium-term trend might turn bullish, which could further lift the stock.

Infosys (₹585.2)

 

Even after a considerable recovery towards the end of the week, Infosys remained one of the weakest stocks among the majors. In the first half of the week, it weakened sharply and registered a fresh 52-week low of ₹509.2, also the lowest since February 2018.

The stock is trading well below both the 21- and 50-day moving averages, indicating a bearish bias. Corroborating a weak outlook, the moving average convergence divergence indicator in the daily chart is showing good bearish momentum as it has extended deeper into the negative territory.

On the other hand, the daily relative strength index is showing an uptick. But it remains below the midpoint level of 50. Notably, the trend remains bearish until the price stays below ₹630. So, traders can go short in the stock on rallies with a dynamic stop-loss.

While the initial stop-loss can be at ₹630, move it downwards with a gap of 1.5 times the daily average true range as and when the price drifts lower. The nearest supports are ₹530 and ₹500, which can be the potential targets.

RIL (₹1,017.9)

 

Though the stock of Reliance Industries had been declining for most part of the week, it recovered sharply last Friday, recouping some of its weekly loss. The stock registered a new one-year low of ₹892.2 on Thursday before recovering. But it managed to move above the critical support of ₹1,000.

Until the stock remains above that level, the downside could be limited. The moving average convergence divergence indicator in the daily chart is in the bear zone, but shows signs of losing momentum. The daily relative strength index is showing a fresh uptick and hovering around the over-sold levels.

Also, the oscillator shows signs of a possible bullish divergence. Notably, the stock has formed a morning star candlestick pattern in the daily chart, hinting at a trend-reversal; in the weekly chart, the price action indicates good buying interest at ₹1,000 levels.

Hence, traders can initiate fresh long positions on declines with a stop-loss at ₹900. The immediate resistance level is at ₹1,100. A breakout of that level can take the stock to ₹1,200.

Tata Steel (₹297.7)

 

The stock of Tata Steel witnessed a sell-off in the first half of the week. But in the last couple of trading sessions, the stock gained — after registering an intra-week low of ₹260.5 — erasing some of its weekly loss.

However, the stock has closed marginally below the important level of ₹300. Since it has bounced from ₹260 levels twice in the past two weeks, it could act as a strong base. There are some noticeable indications in favour of the stock.

The moving average convergence divergence indicator in the daily chart is showing signs of momentum, despite being in the negative region. The daily relative strength index has bounced off from the over-sold levels and is showing a fresh uptick.

In the daily chart, the stock has formed a morning star candlestick pattern — an indication of bullish reversal. But the stock faces a considerable resistance at ₹310. Thus, traders can buy the stock with a stop-loss at ₹295 if the price breaks out of ₹310. On the upside, resistance levels can be spotted at ₹325 and ₹343.

Published on March 22, 2020
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