Technical Analysis

Weekly trading guide: Tata Steel set to rally higher

Akhil Nallamuthu | Updated on August 09, 2020 Published on August 08, 2020

SBI (₹190.6)

The stock of SBI seems to be going nowhere as it continues to trade in a tight range and the consolidation phase has entered the second month. While the broader range seems to be between ₹178 and ₹200, within which the price has been oscillating through July, the trading range was narrower last week. It was largely held between ₹189 and ₹195.

The stock cannot be expected to trend on either direction until either ₹178 or ₹200 is breached. As the scrip lacks trend, the relative strength index, though above the midpoint level of 50, has been flat for over a month. Similarly, the moving average convergence divergence indicator remains flat.

Considering these factors, traders can stay on the fence until the stock exhibits a confirmatory signal on either side. A breakout of ₹200 can turn the outlook positive and possibly lift the price to ₹210. Above that level, it can appreciate to ₹218 — the 38.2 per cent Fibonacci retracement level.

On the downside, the price area between ₹178 and ₹182 can be a support band. A break below ₹178 can drag the stock to ₹170.

ITC (₹196)

The stock of ITC has been on a sideways trend, oscillating between ₹192 and ₹200 for the past five weeks. The 23.6 per cent Fibonacci retracement level coincides at ₹192. Before entering the sideways trend, the stock was in a bullish trend where it had rallied from ₹158.

Recently, it has been struggling to breach the psychological level of ₹200. Traders need to be cautious, as a prolonged consolidation period can open the door to a possible downtrend. Loss in momentum can be witnessed from the daily relative strength index, which has been hovering at around the midpoint level of 50 for the past month.

Likewise, the moving average convergence divergence indicator, too, is moving in the neutral region. So, for the stock to establish a sustainable bullish trend, it should rally past the roadblock at ₹200. Since the price is held between ₹192 and ₹200, the near-term outlook will remain uncertain until either of the levels are breached.

Until then, traders can stay on the fence. While ₹210 can be the nearest hurdle above ₹200, the key support is at ₹180.

Infosys (₹950.9)

After closing in the green for seven straight weeks, the stock of Infosys recorded a marginal loss last week as it closed at ₹950.9 on Friday versus the previous week close of ₹966. However, the price remains above the 21-day moving average and the important support of ₹900.

The price level of ₹900, along with ₹914 — its 23.6 per cent Fibonacci retracement level — can be a support band for the stock; until the price remains above those levels, the sentiment could be bullish. Following the marginal decline in price, the daily relative index has come off slightly from its peak.

But it remains in the positive territory. Similarly, the moving average convergence divergence in the daily chart has flattened after having moved up for the last one month. While these are indications that the bullish momentum might be softening, these are not confirmations of bearish reversal.

So, traders can continue to be bullish and initiate fresh long positions on declines with a stop-loss at ₹900. While ₹1,000 can be the immediate hindrance, a breakout can lift it to ₹1,040.

RIL (₹2,146.4)

Bulls seem to be making a comeback as the stock of Reliance Industries gained last week after registering a loss in the preceding week. The stock initially depreciated, but mid-week it bounced from the crucial support of ₹2,000 — where the 21-day moving average lies.

Also, the 23.6 per cent Fibonacci retracement level of the previous uptrend coincides at ₹2,000, making it a significant support. This means the price has formed a higher low — a positive indication. Nonetheless, the scrip was unable to cross over the prior high, ie, the all-time high at ₹2,198.8.

But the major trend remains bullish and the likelihood of the stock making fresh peaks is high. The indicators like the relative strength index and the moving average convergence divergence in the daily chart stay flat. But notably, both the indicators are in their positive territories.

Considering the above factors, traders can retain the bullish view and buy on dips with a stop-loss at ₹1,950. The stock is likely to breakout of ₹2,200 and possibly rise to ₹2,250. Beyond that level, it can rally to ₹2,300.

Tata Steel (₹404)

The stock of Tata Steel, which has been steadily gaining for the past two months, witnessed a considerable rally last week. Thus, the stock has closed positively for two consecutive weeks. As a result, it closed above the important level of ₹400 — the 61.8 per cent Fibonacci retracement level— opening the door for further strengthening.

The strong momentum is shown by how quickly the price has diverged itself from the 21-day moving average on the upside. As the stock appreciated, the daily relative strength index is showing a fresh uptick and lies above the midpoint level of 50.

Also, the moving average convergence divergence indicator in the daily chart, which has been flattish, has turned its trajectory upwards. Since the price action hints at strong bullish momentum and the stock is above ₹400, the uptrend is likely to continue.

So, taking the above factors into account, traders can initiate fresh long positions with a stop-loss at ₹370. On the upside, stock can rally to ₹420 and ₹434.

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Published on August 08, 2020
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