Technical Analysis

Weekly trading guide: Trend remains unclear for Infosys

Akhil Nallamuthu | Updated on September 06, 2020 Published on September 06, 2020

A view of the Infosys headquarters in Bangalore.   -  istock.com/alexsl

Infosys (₹919.1)

 

 

The stock of Infosys closed with a minor loss last week. But it is largely due to the gap-down open and by looking at the daily chart, the price action indicates that it has been moving in a sideways trend between ₹914 and ₹950. Importantly, the 23.6 per cent Fibonacci retracement level coincide at ₹914, making it a significant level. Moreover, along with ₹900, it provides a good support band for the stock. So, the support band between ₹900 and ₹914 can be key from the medium-term trend perspective. But all is not rosy for the stock; the price has declined below the 21-day moving average and the daily relative strength index has dropped below the midpoint level of 50. Also, the moving average convergence divergence indicator has been moving downwards for the past couple of weeks. Hence, at current price levels, no fresh positions are recommended, and traders can wait for confirmation i.e. the stock should breach either ₹900 or ₹950. While a breakout of ₹950 can take the stock to ₹1,000, a break below ₹900 can drag the stock to ₹830.

 

Outlook turns negative for ITC

 

After consolidating within ₹192 and ₹208 for eight weeks, the stock of ITC has broken below the lower boundary of the range last week. It recorded a loss of about 4.5 per cent, closing at ₹186.7 on Friday. This has turned the outlook negative and opened the door for further depreciation. Also, the price has gone well below the 21- and 50-day moving averages. Corroborating the bearish view, the daily relative strength index has been declining along with the price, indicating good bearish momentum. And it has slipped below the midpoint level of 50. Likewise, the moving average convergence divergence indicator in the daily chart, which has been flat for the past two months, is showing fresh signs of weakness.Notably, it has entered the bearish zone. Hence, the price might drop further towards the support level of ₹181. But it is highly likely that the downswing can extend to ₹174. So, traders can short the stock with stop-loss at ₹200. In case the stock rallies from the current level, it can face resistances at ₹192 and ₹200.

RIL charting sideways trend

 

Extending the sideways trend for the fourth week, the stock of Reliance Industries continues to oscillate between ₹2,070 and ₹2,155. Nevertheless, the overall bull trend does not seem to be under immediate threat as the price is above the psychological level of ₹2,000. The 23.6 per cent Fibonacci retracement level coincides at ₹2,000, making it a strong support. As the stock is sluggish now, the relative strength index is flat; but it manages to stay above the midpoint level of 50. The moving average convergence divergence indicator in the daily chart has been moving downwards. However, the price action is not supportive of the downward movement. So, unless either of ₹2,070 or ₹2,155 is breached, the next leg of trend cannot be confirmed. Since the stock is trading above ₹2,000, traders can approach it with a bullish bias. That is, go long with stop-loss at ₹1,930 if the price moderates to ₹2,000 or initiate fresh long positions with stop-loss at ₹2,050 if it breaks out of ₹2,155. Above ₹2,155, the stock could rally to ₹2,250.

SBI witness a sharp correction

 

The stock of SBI opened with a gap-up last Monday. But it witnessed an abrupt reversal in direction that led to a sharp fall and the negative sentiment sustained throughout the week. The stock lost over 8 per cent, ending the week at ₹206.6. Despite that, the price lies above the 21-day moving average and has not formed a lower low, meaning that the stock has not confirmed a bearish trend reversal. Moreover, the scrip remains above the psychological support of ₹200. The daily relative strength index, though off its peak, lies in the bullish region and similarly, the moving average convergence divergence indicator in the daily chart lies in the positive territory. Considering the above factors, traders can be cautiously bullish on the stock and go long in declines with stop-loss at ₹190. On the upside, the stock is likely to appreciate to ₹220 – the 38.2 per cent Fibonacci retracement level. Above that level, the stock can rise to ₹230. A depreciation from the current level can drag the stock to ₹200 – a strong support. Subsequent support is at ₹190.

Tata Steel might consolidate

 

 

After an initial blip, the stock of Tata Steel attempted to advance above the crucial hurdle at ₹438. However, after trading above that level briefly, the price declined and ended the week on a flat note at ₹421.3. Even though the stock was unable to cross over the resistance at ₹438, it did not result in a decline below ₹410 either, since it provided a cushion. This also means, the stock could stay between ₹410 and ₹438 in the near term, essentially moving in a sideways trend. Following the softening of price towards the end of the week, the moving average convergence divergence indicator in the daily chart descended slightly. Yet, the daily relative strength index has been flat. Since the stock is not expected to establish a trend until it takes out either ₹410 or ₹438, traders can stay on the sidelines for now. As the direction of the break can indicate the next leg of trend, go long if the stock breaks out of ₹438 or go short if the stock breaches ₹410. Resistance above ₹438 is at ₹465 whereas support below ₹410 is at ₹380.

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Published on September 06, 2020
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