Technical Analysis

Weekly trading guide: Tata Steel continues to consolidate

Akhil Nallamuthu | Updated on May 24, 2020 Published on May 24, 2020

SBI (₹150.8)

The stock of SBI tumbled last week and made a fresh 52-week low of ₹149.45 on Friday, before closing the week at ₹150.8. Notably, ₹149.45 is also its lowest price since February 2016. The stock has thus posted a loss for three consecutive weeks.

Also, it is well below both the 21- and 50-day moving averages and has been forming lower lows and lower highs, indicating a bearish momentum. As the stock is under the influence of bears, the daily relative strength index is below the midpoint level of 50; the moving average convergence divergence indicator is in the negative region.

Considering the above factors, there seem to be enough bearish indications that hint at further decline. However, the price area between ₹145 and ₹150 is a strong support band, which can possibly arrest decline. So, traders can sell the stock with a stop-loss at ₹160 if it breaks below the support band.

Below ₹145, the sell-off is likely to intensify. While ₹135 can act as a support, the stock could even weaken to ₹125.

ITC (₹186.3)

The stock of ITC rallied throughout last week as it took support at ₹158. The price has crossed over both the 21- and 50-day moving averages. The stock marked an intra-week high of ₹191.9, before ending the week a bit lower at ₹186.3. Thus, it has breached an important resistance at ₹175.

But the price level of ₹190 is a notable resistance and a breakout of this level can turn the medium-term trend positive. On the back of the rally last week, the daily relative strength indicator is showing a fresh uptick and has moved above the midpoint level of 50. Also, the moving average convergence divergence indicator has entered the bullish territory.

Hence, the stock will most likely strengthen during upcoming trading sessions. Considering the resistance at ₹190, traders can go long on the stock if it breaches that level decisively. The stop-loss can be placed at ₹173.

A breakout of ₹190 can take the stock to the important level of ₹200, where the 50 per cent Fibonacci retracement of the previous downtrend lies. The subsequent resistance is at ₹222.

Infosys (₹692.3)

The stock of Infosys appreciated last week, taking support at ₹650. At ₹650 lies the 50-day moving average, making it a strong support. However, the stock could not break out of ₹700 where it closed at ₹692.3.

Notably, for the past one month, the stock has been oscillating between ₹650 and ₹700, and until it remains within these levels, the next leg of trend cannot be confirmed. The 21-day moving average has crossed over the 50-day moving average — a bullish indication. Supporting the bullish bias, the daily relative strength index is showing a fresh uptick and has moved above the midpoint level of 50.

Also, the moving average convergence divergence indicator on the daily chart is in the positive territory. But until the stock remains within ₹650 and ₹700, it cannot be expected to establish a trend.

So, traders can remain on the sidelines until either of these levels are breached. The resistance levels above ₹700 are at ₹725 and ₹760, whereas the support levels below ₹650 are at ₹615 and ₹600.

RIL (₹1,431.5)

The stock of Reliance Industries was sluggish last week, closing marginally in the red. The stock has thus posted a loss for two consecutive weeks after having rallied in the preceding seven weeks. This could be an indication of the uptrend losing strength.

The price has slipped below the 21-day moving average at ₹1,450, where it coincides with the 23.6 per cent Fibonacci retracement of the previous uptrend. The daily relative strength index, though above the midpoint level of 50, has been on a downward path for the past few weeks.

The moving average convergence divergence indicator on the daily chart has turned the trajectory downwards, hinting at a possible bearish reversal. But ₹1,400 can act as a support, and until the price remains above this level, bears will find it difficult to take charge. So, traders can initiate fresh short positions with a stop-loss at ₹1,500 if the stock breaks below the important level of ₹1,400.

On the downside, the immediate support below ₹1,400 is at ₹1,330 with the subsequent support at ₹1,250.

Tata Steel (₹274.4)

The stock of Tata Steel traded flat throughout last week. It has been moving sideways for about three months, fluctuating between ₹250 and ₹300. Unless it breaches either of these levels, the next leg of trend will be uncertain.

As the price trades in a horizontal trend, the relative strength index remains flat, but it stays below the midpoint level of 50. The moving average convergence divergence indicator, which is in an upward trajectory, is now flattening, indicating that the bulls might be losing strength.

The price remains below both the 21- and 50-day moving averages, showing a bearish bias. Whatsoever, until the price oscillates within ₹250 and ₹300, the stock cannot be expected to trend and so traders can adopt a range-trading strategy until either of those levels are taken out.

Above the upper boundary of the range, the resistance levels can be spotted at ₹325 and ₹345 — the 38.2 per cent Fibonacci retracement level. The support levels below ₹300 are at ₹240 and ₹225.

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Published on May 24, 2020
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