Technical Analysis

Weekly trading guide: Tata Steel likely to head north

Akhil Nallamuthu | Updated on February 09, 2020 Published on February 09, 2020

SBI (₹320.5)

After a minor decline, the stock of SBI bounced back from the support at ₹300. The rally took the stock above the resistance at ₹310; SBI closed the week at ₹320.5.

Though the price has moved past the 21-day moving average (DMA), it is facing a strong resistance at ₹325, where the 50-DMA coincides. This increases the significance of the resistance.

Following the rally, the daily Relative Strength Index (RSI) has moved up; it has crossed the midpoint level of 50 — a bullish indication. Also, the Moving Average Convergence Divergence (MACD) indicator is showing an uptick.

However, the stock is hovering around a key resistance. Hence, traders are advised to buy only if the price advances above ₹325 with a stop-loss at ₹310. Above ₹325, the immediate resistance is at ₹338, and the subsequent resistance is at ₹343.

If the stock fails to break out of ₹325 and declines, one can buy at ₹310 with ₹297 as the stop-loss.

ITC (₹213.4)

Extending the downtrend, the stock of ITC weakened last week and registered a 52-week low at ₹205. But the stock recovered from that level before closing the week at ₹213.4.

However, the major trend remains bearish and it might face selling pressure if the price rises from current levels. Notably, the stock stays well below the 21- and 50-DMAs, and ₹220 seems to be acting as a resistance. The stock should break out of that level to establish a sustainable rally.

While the MACD indicator in the daily chart has further extended into the negative territory, the RSI remains below the midpoint level of 50. All these factors hint at further depreciation in the stock price in the near term. On the back of the downtrend, if the stock declines, it will most likely retest its prior low at ₹205.

Hence, traders can approach the stock with a bearish bias and short it on rallies with a stop-loss at ₹223. The support below ₹205 is at ₹196.

Infosys (₹777.3)

The stock of Infosys continued to consolidate during the last week. The stock has been oscillating between ₹760 and ₹790 over the past two weeks. But it continues to stay above both 21- and 50-DMAs, hinting at a bullish inclination. Until the price stays above ₹760, the uptrend will not be under threat.

However, there are no indications of a fresh uptrend as the daily RSI, despite staying above the midpoint level of 50, is showing signs of reduced bullish strength. The MACD indicator in the daily chart, too, shows signs of bulls losing sheen.

There is a significant hurdle at ₹800; thus, the zone between ₹790 and ₹800 is a significant resistance band. This increases the chances of a price correction and, therefore, traders are advised to wait until the resistance band is breached.

One can buy the stock above ₹800 with a stop-loss at ₹770. On the upside, the resistance levels beyond ₹800 are at ₹832 and ₹847.

RIL (₹1,433.6)

The stock of Reliance Industries rallied through last week after declining sharply towards last month-end.

But the rally was capped at the 38.2 per cent Fibonacci retracement level of the prior downtrend, and the price remains below 21- and 50-DMAs. This implies that the stock is trading with a negative bias. Though the daily RSI rose in tandem with the price, it is below the midpoint level of 50, and the MACD indicator continues to be in the bearish territory.

One can also notice an evening star candlestick pattern in daily chart — a bearish indication. Thus, until the stock trades below ₹1,500, a bullish trend cannot be confirmed.

Traders can maintain a bearish view on the stock. Initiate a fresh short position only if it falls below the support at ₹1,425. Place an initial stop-loss at ₹1,470 and shift it downwards if RIL declines with a gap of 1.5 times the daily average true range indicator.

The supports are at ₹1,400 and ₹1,365.

Tata Steel (₹471)

The stock of Tata Steel rallied strongly last week, taking support at ₹420 levels. It has moved past the 21- and 50-DMAs, potentially indicating a resumption of bullish trend; the stock has also rallied above the important level of ₹460.

Following the rally, the daily RSI has risen sharply and crossed above the midpoint level of 50 — a bullish indication. The MACD indicator in the daily chart, too, is showing signs of recovery as it enters the bullish zone.

Thus, the outlook is positive. From the trading perspective, it is recommended to initiate fresh long positions on dips and place a stop-loss at ₹455.

On the upside, the stock will face a resistance at ₹500. The resistance is significant as it coincides with the 50 per cent Fibonacci retracement level of the downtrend that extended between early 2018 and late 2019.

Hence, ₹500 can be the primary target, above which the resistance is at ₹515.

Published on February 09, 2020
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