Upside for SAIL may be limited: OI data

The stock of Steel Authority of India Limited has given a neckline breakout of Adam & Adam double bottom pattern as on November 05, 2020, and thereafter, marked the sequence of higher tops & higher bottoms. The stock has gained almost 101 per cent from the breakout point of Rs 37 in just 40 trading sessions.   

During this northward journey, the stock has marked the sequence of higher highs & higher lows for nine consecutive weeks. It resulted in the formation of a bullish record session count candlestick pattern thereby, suggesting that the bulls may take a breather.  

This is an extremely rare pattern and usually occurs at the top of an uptrend. Generally, we rely on the typical momentum indicators or oscillators for recognising an overbought and oversold condition of the stock. However, this Japanese candlestick pattern gives us a unique way to recognise the time when the momentum is about to wane out.  

The momentum indicators and oscillators are in an extremely overbought region. The relative strength index (RSI) on the weekly chart is currently quoting at 84.88 levels, which is the highest since September 2003. The stochastic oscillator on the weekly chart has given a bearish crossover in the overbought zone. Further, the negative divergence is clearly visible between the daily RSI and the stock price movement, which suggests a limited upside.  

The open interest data is also supporting the same phenomenon. As for January monthly expire, the highest call open interest is at 75 strikes with 70,87,000 OI, followed by the 77 strikes call option with 24,32,000 OI. This suggests that the zone of Rs 75-Rs 77 will be a major hurdle for the stock.   

On the put side, the highest put open interest is at 60 strikes with 64,60,000 OI, followed by 70 strikes put option with 38,38,000 OI. The current derivative data suggest that Max Pain is at 70 for the monthly expiry.  

Going ahead, the 5-day EMA level is likely to act as immediate support for the stock, which is currently quoting at Rs 69.90. In case, the stock sustains below the 5-day EMA level, then it may witness some profit booking.