Technical Analysis

Weekly trading guide: Short-term trend is bearish for SBI

Akhil Nallamuthu | Updated on September 27, 2020 Published on September 27, 2020

SBI (₹182.2)

Extending the downtrend, the stock of SBI depreciated last week, too, and closed with a loss for a fourth straight week — an indication of strong bear trend. But the stock rebounded strongly on Friday after registering a three-month low of ₹175.5 since that price level is a support.

That said, the trend remains negatively biased as the price continues to form lower lows. Moreover, the stock is below the 21- and 50-day moving averages, a bearish indication. Corroborating the bearish outlook, the daily relative strength index is falling steadily and lies below the midpoint level of 50.

Also, the moving average convergence divergence indicator on the daily chart is heading southwards and remains in the negative territory. The above factors show potential for more decline. But the stock has a support at ₹178. So, traders can short the stock with a stop-loss at ₹190 if the price breaks below the support of ₹178.

The stock is likely to fall to ₹170 and subsequently, it can even drop to ₹160 since the bears have an upper hand. Resistances can be spotted at ₹186 and ₹195.

ITC (₹170.7)

On the daily chart, the stock of ITC is clearly indicating a downtrend. As a result, the stock breached a support at ₹180 and continued to fall, registering a four-month low of ₹166.1 last week, before recovering and ending the session at ₹170.7.

The stock, which began its descent mid-August, has been consistently forming lower lows, and posted weekly loss for five times in a row, showing a strong bear trend. Following the stock price, the daily relative strength index, too, has declined over the past month and now lies below the midpoint level of 50.

The moving average convergence divergence indicator on the daily chart has moved further into the bearish territory and the slope remains negative. These are indications of a sustaining, downward momentum. However, ₹165 is a support for the scrip. So, traders can wait for now and initiate fresh short positions on the stock if it breaches the support of ₹165; stop-loss can be at ₹180.

A breach of ₹165 can intensify the sell-off, possibly dragging the stock to ₹158 and ₹150. Notable resistance levels are at ₹178 and ₹185.

Infosys (₹1,011.4)

The stock of Infosys, which had been largely flat, witnessed increased volatility towards the end of the week — on Thursday, the stock declined and registered an intra-week low of ₹970, but it swiftly recovered and closed the week at ₹1,011.4.

The stock has thus managed to stay above the critical level of ₹1,000 — a positive indication. Also, the stock remains above the 21-day moving average, retaining the positive outlook. Since the price action remains bullish, the daily relative strength index is above the midpoint level of 50 and is now showing a fresh uptick.

Likewise, the moving average convergence divergence indicator on the daily chart stays in the positive territory and continues to chart an upward trajectory. So, given the scenario, the stock will most likely appreciate from the current levels. Hence, traders can go long on the stock on declines with a stop-loss at ₹960.

On the upside, the stock is likely to rally past its all-time high of ₹1,037 and advance towards ₹1,100. While ₹1,000 is a strong support, the price level of ₹975 can be a substantial base.

RIL (₹2,201.7)

The stock of Reliance Industries, which had been on a strong uptrend, witnessed a price correction last week. The scrip declined throughout the week and after making an intra-week low of ₹2,171 on Friday, reversed and closed above the support band of ₹2,180 and ₹2,200.

Until the stock trades above this band, the trend will be inclined to upside. Notably, the 21-day moving average coincides with the support band, making it a key base for the stock. As the price moderated, the daily relative strength index declined.

However, it is above the midpoint level of 50. Though the moving average convergence divergence indicator on the daily chart exhibits signs of weakness, it is well-placed in the positive territory. So, the recent price correction has not really reversed the trend; traders can be bullish but with caution, given the broader market sentiment.

Traders can wait for evidence of build-up of fresh upward momentum before initiating long positions. Go long with a stop-loss at ₹2,150 if the price breaks out of ₹2,230. Resistances are at ₹2,300 and ₹2,360.

Tata Steel (₹352.1)

The stock of Tata Steel saw a sharp decline in price last week and consequently, it breached a support of ₹375. It further declined and registered an eight-week low of ₹342.7 on Thursday and closed just above the support of ₹350, where the 50 per cent Fibonacci retracement level of the prior rally lies.

The price action looks weak and the likelihood of the stock depreciating from the current levels is high. Substantiating the bearish bias, the moving average convergence divergence indicator on the daily chart entered the bearish zone last week and shows strong downward momentum.

Also, the daily relative strength index has been steadily declining and has dropped below the midpoint level of 50. Moreover, the price has slipped below the 21- and 50-day moving averages, giving the stock a weak outlook. Considering the above factors, traders can be bearish and initiate fresh short positions on rallies with a stop-loss at ₹376.

The nearest support can be spotted at ₹332 — the 61.8 per cent retracement level. Below that level, the support is at ₹315.

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Published on September 27, 2020
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