Dharmesh Shah ICICI Direct.com Research
The share price of State Bank of India (SBI) has seen a strong up move during 2016-17, rallying from Rs 150 to Rs 351. The corrective decline in the last nine months from the October 2017 all-time high of Rs 351 saw the stock testing the major support area around Rs 240-250.
The stock has seen a major base formation in the last three months around the support area and has recently resumed a fresh up move, thus providing an entry opportunity for the medium term prospective.
Post the base formation, the stock has recently resumed up move and has formed a higher peak and higher trough on the weekly chart. It has led to a higher base formation signalling a reversal of the corrective trend and resumption of the fresh up move in the stock.
The stock during April-May 2018 witnessed a base formation around Rs 240-250 as it is the confluence of:
a) 50% retracement of the entire rally of the last two years (Rs 149-351) is placed at Rs 249
b) the long-term 200 weeks EMA, which acted as strong support for the stock is currently placed around Rs 257
During the current decline, the stock has already taken six weeks to retrace just 80% of the previous four week’s up move from Rs 240 to Rs 289.
Slower retracement signals corrective nature of the current decline and formation of a higher trough signalling positive price structure.
We expect the stock to continue its current up move and head towards Rs 302 as it is 61.8% retracement of the entire decline (351-233). This also coincides with the price parity of the previous up move from Rs 233 to Rs 289 as projected from a recent trough of Rs 250
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