Technical Analysis

Weekly trading guide: Tata Steel tests a support band

Akhil Nallamuthu | Updated on September 20, 2020 Published on September 20, 2020

Price action looks weak in SBI

SBI (₹192.6)

The Stock of SBI declined last week and, consequently, it closed below the support of ₹200. It has thus closed in the red for three weeks in a row, indicating a good bearish momentum.

Also, the price is now below the 21- and 50-day moving averages, giving it a bearish bias. Moreover, the daily relative strength index has slipped below the midpoint level of 50 and the moving average convergence divergence indicator in the daily chart is on a downward trajectory, entering the bearish zone last week.

So, the indications are that the stock is likely to weaken further from the current level. But it has a considerable support at ₹190, where the 50 per cent Fibonacci retracement level lies; sell-off can intensify below this level. Considering these factors, traders can initiate fresh short positions with a stop-loss at ₹200 if the price decisively breaches the support at ₹190.

On the downside, the stock could find support at ₹178. The subsequent support can be spotted at ₹170. If the stock rallies from the Friday’s closing level, it will face hurdles at ₹200 and ₹206.

ITC set to depreciate further

ITC (₹179.1)

The stock of ITC continued its recent downtrend and depreciated last week. It closed just below a support of ₹180 after registering a four-month low of ₹177 on Friday. The 38.2 per cent Fibonacci retracement level of the prior rally lies at ₹180, making it an important level.

Though the break is not decisive, the prevailing bearish bias is likely to weigh on the stock. The price action shows that the scrip has been forming lower lows for the past three weeks, hinting at considerable downside momentum.

Supporting the same, the moving average convergence divergence indicator in the daily chart has been tracing a downward trajectory and has extended further into the negative territory. The daily relative strength index is moving down in tandem with the stock price. Also, the price is well below the 21- and 50-day moving averages.

So, the likelihood of the stock falling further is more; traders can short the stock on rallies with a stop-loss at ₹192. The stock can be dragged down to ₹172 and ₹164, but if it recovers and appreciates, it has roadblocks at ₹186 and ₹192.

Infosys breaks out of range

Infosys (₹1,002.1)

After oscillating in a sideways trend between ₹900 and ₹975 for the past couple of months, the stock broke out of the range last week, opening the door for further strengthening. Notably, it marked a fresh lifetime high of ₹1,021 last Thursday, before wrapping up the week just above the psychological level of ₹1,000.

The stock bounced off the 21-day moving average support, which was at ₹950. Corroborating the positive outlook, the daily relative strength index is indicating a substantial strength in the uptrend, as it has been rising steadily. The moving average convergence divergence indicator in the daily chart has made a U-turn and is on an upward trajectory.

Importantly, the trend will remain bullish as long as the stock is trading above the 50-day moving average at ₹940. Hence, the intermittent corrections will be an opportunity to buy the stock. Thus, traders can initiate fresh long positions on declines with a stop-loss at ₹950.

The stock is likely to appreciate to ₹1,070 and possibly to ₹1,100. The key support levels for the stock are at ₹975 and ₹940.

RIL retains strong upward bias

RIL (₹2,305.7)

Following a breakout of ₹2,200 during the week before last, the stock of Reliance Industries looked bullish and was expected to extend the rally. But even though the stock recorded a fresh all-time high of ₹2,369.3 last week, it was largely trading in a narrow range between ₹2,280 and ₹2,360.

Nevertheless, the major trend is bullish and the stock will most likely advance during the upcoming sessions. The upward bias is corroborated by the moving average convergence divergence indicator as it is charting an upward trajectory, and stays in the bullish zone.

On the other hand, the daily relative strength lies above the midpoint level of 50. Also, the stock will remain bullish as long as it stays above the key base of ₹2,200. Considering the above factors, traders can initiate fresh long positions on declines with a stop-loss at ₹2,200. On the upside, the stock is likely to advance to ₹2,400.

Beyond that level, it can appreciate to ₹2,500 if the momentum sustains. On the downside, the support levels for the stock can be spotted at ₹2,200 and ₹2,170.

Tata Steel tests a support band

Tata Steel (₹395.5)

After registering a seven-month high of ₹443.6 in early September, the stock of Tata Steel has been on a decline. It depreciated last week as well, registering a loss for a fourth consecutive week.

This indicates a strong downtrend. The negative bias is also shown by the daily relative strength index, which has been on a decline and now lies below the midpoint level of 50. The moving average convergence divergence indicator is tracing a downward slope and is on the verge of entering the bearish territory. However, the stock is currently hovering around a strong support band.

At ₹396 lies the 50-day moving average and at ₹389 lies the 38.2 per cent Fibonacci retracement level. Hence, the price area between ₹389 and ₹396 acts as a support band. So, even as the bias is bearish, traders can initiate fresh short positions with a stop-loss at ₹410 if the price decisively breaches the support band.

The support levels below ₹389 can be ₹375 and ₹362. If the stock appreciates from here, it is likely to face resistances at ₹410 and ₹425.

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Published on September 20, 2020
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