Reliance Industries: Is it a Stock In Peril

Last week on Tuesday, I tweeted that we would not have a breakout in the headline indexes until Reliance Industries (NS:) and HDFC Bank (NS:) were to get out of consolidation. I had said this when I was monitoring various market players across the day; I had noticed that all attempts at a breakout in the indexes were being thwarted by these two only. This is because they were severely rejecting the upside in their charts plus their bullish-bearish volume was fully in favor of the bears. This assumption of mine stayed true until the end of the week as the stocks played spoilsport. For instance, HDFC Bank consistently prevented the from breaking through the quant resistance level of 41,900, which for options gave me and my clients a very nice trade execution point. Thus, in light of this, I will look at one of these names from the perspective of an FNO trader and from the perspective of an investor. This is as it will let you know what to expect down the road.

The stock I have chosen to look at is Reliance Industries. This is because it has been facing challenges in recent trading sessions as the stock has been stuck in a multi-year change of polarity support range. This to me is a cause of concern, as the stock is now developing a dangerous pattern on the weekly timeframe.

Now on the weekly chart, one of my self-made technical indicators shows that the bullish to bearish volume in the stock has been worsening each week. For example, last week the bulls only controlled 37% of the volume, which was a significant drop from the prior week. Thus, if the stock were to break the support of last week’s candle, then we would begin a fresh decline. Hence, in such a scenario, the stock is likely to fall until the quant support zone at Rs. 2,200, and if that breaks, it could fall further to Rs. 2,120.

For traders and investors, the current situation presents both challenges and opportunities. As an FNO trader, one can take advantage of the range-bound movements and earn a decent amount of option premium on the positional front. Thus, as long as the stock stays within the range of last week’s low, FNO traders can sell puts below the support level of Rs. 2,250 whilst also selling calls above Rs. 2,380. This will allow option sellers to make easy money as it takes advantage of the stock’s range-bound movements. I have not covered option buying, as in this range I believe option buying ought to be undertaken only in an intraday setting. This is because the current range-bound movement would eat option buyers alive in positional trading. Thus, personally for Reliance, I am using option buying strictly for intraday while maintaining option sells in positional as that gets me the premium. This way, you get the best of both worlds.

For stock investors, the current situation requires a more cautious approach. This is as if the stock were to break the support of last week’s candle, then it would signal a drop to Rs. 2,120. Thus, in such a scenario, investors may consider reducing their exposure to the stock. This is as if it were to break Rs. 2,120, then we can have a steeper decline as it shall signal a change in the medium-term trend. Hence, from an investor’s point of view, it is key for us to hold the support at Rs. 2,120. Until then it is better to sit on the sidelines and watch. 

Overall, Reliance Industries is currently facing challenges in its stock price, and traders and investors ought to monitor the stock closely and adjust their strategies accordingly. While the current situation presents a plethora of opportunities for FNO traders, it requires a more cautious approach to be adopted by investors.

Disclaimer: The investments discussed by Sandeep Singh Ahluwalia may not be suitable for all investors. Thus, you must trust your analysis and judgment before making investment decisions. The report provided is for informational purposes only and should not be interpreted as a proposition to buy or sell any securities.