Technical Analysis

Weekly trading guide: Tata Steel tests a crucial hurdle

Akhil Nallamuthu | Updated on March 16, 2020 Published on March 15, 2020

SBI (₹242)

On Friday, the stock of SBI made a sharp recovery after falling through the week. The same day, it marked a fresh 52-week low at ₹184.65. But the trend remains bearish, and despite bouncing back sharply, the stock’s weekly return remained negative. It closed in the red for a third consecutive week — a bearish indication. The price stays below both the 21- and 50-day moving averages.

The moving average convergence divergence indicator in the daily chart is in the negative zone and continues to exhibit a bearish bias. On the other hand, the daily relative strength index has shown an uptick as the price rebounded, but stays below the midpoint level of 50. So, there are no indications of a bullish reversal. Also, in the daily chart, ₹248 is a strong resistance; so, the stock should confirm a daily close above that level to establish a sustainable rally.

As it is hovering at a key resistance, traders with a high risk appetite can short the stock on rallies with a stop-loss at ₹260. The potential targets can be at ₹225 and ₹215.

ITC (₹162.2)

The stock of ITC, which has already been in a strong downtrend since mid-2019, saw its price tumble over the last week. The stock recorded a fresh one-year low of ₹134.6 on Friday, before rallying. Notably, ₹134.6 is its lowest price since March 2012 — this explains the strength of the downtrend.

As the stock closed at ₹162.2, it breached a crucial support at ₹178, which had been its multi-year low until last week. Going forward, unless the stock moves past ₹178, the chance of a bullish reversal looks remote. The daily relative strength index, on the back of the rally on Friday, is showing a mild uptick.

However, there are no hints of a reversal. The moving average convergence divergence indicator in the daily chart continues to be in the downward trajectory, indicating further weakness. So, based on these factors, traders can continue to take a bearish view on the stock; rallies, if any, can be used to initiate fresh short positions.

The stop-loss can be at ₹180. From the current market price of ₹162.2, the nearest supports are at ₹155 and ₹134.6.

Infosys (₹642.3)

In the first week of March, when the entire market was biased towards a decline, Infosys was among the few stocks that managed to avoid the bear trend. Last week, the market witnessed a severe downtrend until Thursday. This time, the stock gave up and declined sharply.

Like most other stocks, it marked a fresh one-year low of ₹570 on Friday and recovered sharply. Also, ₹570 is its lowest price since May 2018. The 21-day moving average has crossed below the 50-day moving average, hinting at a potential bearish trend-reversal. Corroborating this, the daily relative strength index is below the midpoint level of 50 and is showing a considerable bearish momentum.

The moving average convergence divergence indicator in the daily chart has extended further into the bearish territory. Though these factors indicate a further fall, ₹638 — the 50 per cent Fibonacci retracement level — can act as a support.

So, traders can short the stock with a stop-loss at ₹690 if the price decisively breaks below ₹638. The potential targets are ₹590 and ₹545.

RIL (₹1,105.3)

Reliance Industries, which has been one of the best-performing stocks in the past one year, was not immune to the mayhem as its price fell sharply along the broad market during the past week. In fact, the stock briefly traded below the psychological level of ₹1,000 where it made a fresh 52-week low of ₹942.4 on Friday, before rebounding.

Despite the recovery, the stock closed in the red, extending the trend for a third consecutive week. Until the price remains below ₹1,200, it can be bearish. The daily relative strength index, which has been falling in tandem with the price, did not move up even as the stock rallied on Friday. This is an indication of a weak rally, which may not be sustainable.

The moving average convergence divergence indicator in the daily chart has gone deeper into the bearish zone, hinting at a strong downward momentum. On the back of the aforementioned factors, traders can go short in the stock with a stop-loss at ₹1,200. On the downside, ₹1,040 and ₹1,000 are the supports.

Tata Steel (₹326.7)

The stock of Tata Steel declined last week as it witnessed significant selling pressure. It marked a new one-year low of ₹255.3 on Friday, but then rallied and closed at ₹326.7, recouping most of its intra-week loss.

The price of ₹255.3 is also its lowest since April 2016. While the recovery on Friday has given some hope for the bulls, the stock faces a resistance at current levels. The moving average convergence divergence indicator in the daily chart has extended its downward trajectory further into the negative territory, indicating a strong bearish momentum.

On the other hand, the daily relative strength index is showing an uptick. But as it remains below the midpoint level of 50, it cannot be taken as a sign of reversal. The stock can be bearish until the price stays below ₹350.

Hence, rather then initiating fresh short positions at the current levels, traders can sell if it rallies to ₹340 and place a stop-loss at ₹365. Thetargets for the short positions can be at ₹320 and ₹300.

Published on March 15, 2020
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