Mid-term moving average 50 DMA placed around Rs 408 levels defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.
Relative Strength Index (RSI) is a momentous oscillator used to identify trend reversal. It was invented by Welles Wilder Junior.
The default look-back period for RSI is 14, however, this can be lowered to increase sensitivity or raised to decrease sensitivity. RSI calculates the strength of a stock trend and helps to predict their reversals.
Why buy Tata Steel?
There are a lot of trading strategies using RSI; below mentioned is one of the most popular among the trading community. It involves buy after completing retracement for higher movement; however the support of another momentum oscillator stochastic can give additional support.
In past few days, RSI gave a breakout by trading above 50 levels from below and made a high of 75 then after it is trading lower or retracing towards centre line placed at 50 levels, this behaviour is called as 'RSI PBB' setup. RSI PBB is pull back buy setup which indicates, once RSI turns its tail upside after taking support from zone of 45-55 levels, target is previous swing high of RSI which was 75 or previous swing high of prices (Rs 505).
Currently, Tata Steel is going through this setup and we expect higher price movement towards previous high Rs 500-520 levels in coming days.
Figure .1. RSI PBB setup and Buy signal on Tata SteelBuy Signal
- Recent RSI gave a breakout and published swing top around 75 levels.
- After marking high of 75, RSI is retracing towards 50 towards mid-line standing around 50 mark.
- Strong bullish candle formation near the buying zone has given us confirmation of retracement complete and original trend begin.
- Mid-term moving average 50 DMA placed around Rs 408 levels defines mid-term trend is very well augur with bulls as prices are sustained and trading above it.
- Decent volume participation while forming a bullish candle will also give additional confirmation.
Whenever price candle will be near previous swing high which is near Rs 500-520 levels.
Entire bullish view negates on breaching of a swing low and one should exit from a long position. In the case of Tata Steel, it is standing around Rs 384 mark.
We recommend buying Tata Steel around Rs 420-430 levels with a stop loss of Rs 384 for higher targets of Rs 500 and Rs 520 levels as indicated in the above chart.
The author is Head - Technical & Derivative Research, Narnolia Financial Advisors.
Disclosure: Narnolia Financial Advisors/Analyst(s) does/do not have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may be holding aforesaid stocks. The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The views expressed in this research report accurately reflect the personal views of the analyst(s) about the subject securities or issues, and no part of the compensation of the research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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