Analyzing India

This IT Bellwether May Wake Up From a Slumber

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Over the past couple of weeks, the performance of the IT stocks has remained quite muted; the NIFTY IT Index has come off from its November highs and has consolidated over some time. This has led to relative underperformance of the IT group against the broader markets. However, a few signs have emerged on the chart, showing this IT bellwether preparing for some upward price revision over the coming days.

Tata Consultancy Services (TCS.IN)

For most of 2022, TCS has underperformed the broader markets. It was only in October last year that the stock formed double-bottom support in the 2950–3000 zone and started to inch higher. The pattern analysis of the daily chart shows that, between June 2022 and now, the stock has largely remained in a broad, but well-defined, trading range between 2950–3000 levels.

Following the up move that happened after the stock found double-bottom support near 3000 in October, the price tested the previous resistance near 3400 levels. After a failed attempt to break above this point, price retraced, but ended up forming a significantly higher bottom on the chart.

Over the past three to four weeks, the stock has consolidated in a narrow range; consequently, the Bollinger Bands® narrowed, indicating a period of low volatility in the stock. The recent price action shows a strong attempt by the stock to move higher. The price closed above the upper Bollinger Band, indicating a likely resumption of a meaningful up move. Even if the prices temporarily pull themselves back inside the band, a fresh initiation of an up move cannot be ruled out.

While the stock consolidated in a narrow range, it witnessed a golden cross as the 50-day moving average (MA) crossed above the 200-day MA. The stock presently resides in the leading quadrant of the RRG when benchmarked against the broader NIFTY500 Index.

Importantly, the stock enjoys rising relative strength against the broader NIFTY 500 Index. The RS line is rising above the 50-period MA. If you compare the stock against its peer Infosys Ltd. (INFY.IN), TCS comes out as a better choice. The RS line of TCS against INFY is also in a strong uptrend and above the 50-period MA.

While the moving average convergence/divergence (MACD) remains in buy mode, the percentage price oscillator (PPO) is still positive. The relative strength index (RSI) has marked a fresh 14-period high, which is bullish; it remains neutral and doesn't show any divergence against the price.

If the upward revision of price takes place on the expected lines, then the stock has the potential to test 3480–3500 levels. This translates into a price appreciation of ~4% from the current levels. Any close below 3170 will negate this technical setup.


Foram Chheda, CMT

and

Milan Vaishnav, CMT, MSTA | Consulting Technical Analyst | www.EquityResearch.asia | www.ChartWizard.ae


Disclosure pursuant to Clause 19 of SEBI (Research Analysts) Regulations 2014: The analyst, Family Members, or his Associates holds no financial interest below 1% or higher than 1% and has not received any compensation from the Companies discussed.

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Milan Vaishnav
About the author: , CMT, MSTA is a capital market professional with experience spanning close to two decades. His area of expertise includes consulting in Portfolio/Funds Management and Advisory Services. Milan is the founder of ChartWizard FZE (UAE) and Gemstone Equity Research & Advisory Services. As a Consulting Technical Research Analyst and with his experience in the Indian Capital Markets of over 15 years, he has been delivering premium India-focused Independent Technical Research to the Clients. He presently contributes on a daily basis to ET Markets and The Economic Times of India. He also authors one of the India's most accurate "Daily / Weekly Market Outlook" -- A Daily / Weekly Newsletter,  currently in its 18th year of publication. Learn More
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