Reliance Industries Notches 6% Higher; Will It Break All-Time High?

  • Stock Market Analysis

The mammoth of the Indian stock market, Reliance Industries (NS: RELI ) has again led the broader market rally with a 6.01% gain to the last closing price of INR 2,628.85, helping the Nifty 50 to close 2.89% or 456.75 points higher at 16,266.15. With the largest weightage in the Nifty 50, at around 12.86%, Reliance’s trend is imperative for the direction of the index.

Earlier this month, Reliance had crashed from its all-time high of 2.856.15 in a very quick span of time, with much of the selling owing to the global selloff. However, in the last few days, the stock has witnessed increased investors’ demand, enough to absorb the selling pressure, leading to a noticeable up move.

From the low of INR 2,370, marked on 12 May 2022 during the fall, the stock is now up 10.7% to INR 2,624.45. Although this brief rally may provide some relief to investors, a border look at the charts might make bulls a bit uncomfortable.

Reliance Industries chart

Image Description: Daily chart of Reliance Industries with volume bars at the bottom

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After a sharp decline, it is common for a stock to stage a counter-move, i.e. a move on the upside (in this case). Sometimes these counter-rallies tend to change the course of direction, however, in most cases, these rallies are short-lived and the broader trend eventually continues.

How far the counter-rally would stretch could be gauged using the Fibonacci Retracement tool. Looking at the chart above, Reliance has retraced a bit more than 50% of the previous decline which generally is a sufficient retracement before the stock reverses and continues the broader trend. However, no weakness on the chart is there as of now and the stock may continue to rally further before giving up.

Reliance share price

Image Description: Weekly chart of Reliance Industries with RSI at the bottom

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Another reason for the bulls to be cautious is the bearish divergence on the weekly chart. There has been a very clear bearish divergence formed at the all-time high levels, which is definitely not a good sign for investors. Divergence at the very top or bottom of the chart could be an early warning of a potential trend reversal. Although divergences generally do not work in a strongly trending market, be it a bull run or a bear run (and Reliance is in a strong bull run), the early warning should not be ignored. 

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