Technical Analysis

Weekly Trading Guide: Tata Steel breaches resistance band

Akhil Nallamuthu | Updated on January 06, 2020 Published on January 05, 2020

SBI (₹333.7)

The stock of SBI continues to consolidate within a range of ₹325 and ₹340. It has been in a sideways trend for the past three weeks and unless the stock moves out of this range it cannot be expected to trend in any direction. The relative strength index, though remaining above the midpoint level of 50, is flat. Similarly, the moving average convergence divergence indicator in the daily chart indicates a flat trend. However, the price continues to trade above both the 21- and 50-day moving averages (DMAs). Also, the support at ₹325 coincides with the 23.6 per cent Fibonacci retracement level of the previous bull trend, making the support significant. Hence, the stock can be approached with a bullish bias until it trades above ₹325. Thus, traders can initiate fresh long positions on declines and place stop loss at ₹320. On the upside, beyond the upper boundary of the range at ₹340, the subsequent resistance is at ₹351, its previous high. A break above that level would confirm a higher peak in daily chart which could attract more buyers resulting in the stock appreciating to ₹362.

 

ITC (₹238.5)

There was not much change in the stock price of ITC as it has been treading in a tight range in the past week. After inching up to ₹240, the 21-day moving average, the stock faced resistance declined. The daily relative strength index too remains below the midpoint level of 50, indicating weakness. Unless the stock decisively breaks out of the resistance at ₹242, the chances of recovery is slim. Though a major trend of the stock is bearish, one should notice that the price is hovering around the critical support level at ₹235. The stock has bounced thrice from that level since August last year and so it can be expected to arrest the downtrend. Thus, fresh short positions are recommended only if the stock closes below ₹235 on daily basis. However, approaching from the risk-reward perspective, traders are advised to initiate fresh long positions on dips from support at ₹235. Place a tight stop-loss as the sell off might intensify below ₹235. On the upside, resistance levels are at ₹242 and ₹247.5, which could be the potential targets.

 

 

Infosys (₹746)

After moving in a tight range between ₹725 and ₹740 for the past two weeks, the stock of Infosys breached the upper boundary of the range past week, opening the door for further appreciation. The breakout is corroborated by a fresh uptick in the daily relative strength index. The moving average convergence divergence indicator in the daily chart too has moved into the positive territory and the price continues to stay above both 21- and 50-day moving average. Noticeably, the 21-day moving average coincides with the support at ₹725, adding to its significance. Another factor supporting the positive outlook for the stock is that, in the daily chart, price action has been forming higher peaks and higher troughs, indicating a considerable bullish momentum. Hence, from the perspective of trading, one can continue to buy the stock on declines until it trades above ₹725. Stop-loss can be placed at ₹720. The nearest target can be at the resistance level of ₹760, and on further appreciation, the stock can advance to ₹800 over the medium term.

 

RIL (₹1,537.1)

For two weeks in a row, the stock of Reliance Industries (RIL) broke below the support at ₹1,534, but managed to close the week above it. This can be an indication of a considerable buying in the stock as price moderates. Also, in the daily chart, the stock seems to have formed a strong base at ₹1,510, from where the stock rebounded on both the occasions when it broke below ₹1,534. Hence, it can be seen with a bullish bias. However, there are certain indications that shows otherwise. While the daily relative strength index continues to remain below the midpoint level of 50, the moving average convergence divergence indicator in the daily chart is treading a downward path. Both are bearish indications. However, from the perspective of trading, it is advised to initiate fresh short positions only if the stock closes below ₹1,510 on a daily basis. But for traders with higher risk appetite, the recommendation is to go long on dips and place a fixed stop-loss at ₹1,490. Potential targets on the upside are at ₹1,575 and ₹1,617.5.

 

 

Tata Steel (₹483.7)

The stock of Tata Steel breached the resistance at ₹470 last week and hence the uptrend looks intact. The stock has closed in the green for four consecutive weeks and the price remains well above the 21- and 50-day moving averages, retaining its bullish outlook. Though the moving average convergence divergence indicator in the daily chart stays in the positive region – a bullish indication– the daily relative strength index is in the over-bought territory. As shown by falling average true range (ATR), the trading range has been narrowing for past few trading sessions, which can be an indication of a loss in bullish momentum. Hence, one should be cautiously bullish and fresh long positions should have a dynamic stop loss. Traders can buy the stock on declines with initial stop-loss at ₹465. As the stock rises, keep moving the stop-loss on the upside with a gap of 1.5 times the daily ATR. The nearest target on the upside is at ₹500, above which the resistance is at ₹515. On the downside, ₹470 is a strong support.

Published on January 05, 2020
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