In recent weeks, the performance of IT stocks has remained quite subdued; the NIFTY IT index has broken away from its November highs and has consolidated over time. This has caused the IT group to underperform relative to the broader markets. However, some signs have appeared on the chart suggesting that this IT leader is preparing for an upward price correction in the coming days.
Tata Consulting Services – TCS.IN
For most of 2022, TCS has outperformed the broader markets. Just in October last year, the stock formed a double bottom support in the 2950-3000 zone and slowly started to climb higher. Pattern analysis of the daily chart shows that for most of June of last year and now, the stock has stayed within a broad but well-defined trading range between 2950-3000 levels.
After the upward move that took place after the stock found double bottom support near 3000 in October, the price tested previous resistance near 3400. After a failed attempt to break this point, prices retreated, formed but ended up with a significantly higher bottom on the chart.
The stock has consolidated in a narrow range over the past three to four weeks; As a result, the Bollinger Bands narrowed, indicating a period of low volatility for 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 significant upward move. Even if prices move back into the band in the meantime, a renewed upward movement cannot be ruled out.
While consolidating in a tight range, the stock experienced a golden cross as the 50-DMA crossed the 200-DMA. The stock is currently in the leading quadrant of the RRG when compared to the broader NIFTY500 index.
Importantly, the stock is enjoying increasing relative strength versus the broader NIFTY500 index. The RS line rises above the 50-period MA. If we compare the stock to its competitor INFOSYS (INFY.IN), TCS is a better pick. The TCS RS line vs. INFY is also in a strong uptrend and above the 50-period MA.
While MACD remains in persistent buy mode, PPO remains positive. The RSI has made a new 14-period high, which is bullish; it remains neutral and shows no deviation from the price.
If the upside revision of the price happens on the expected lines, then the stock has the potential to test the 3480-3500 levels. This represents a ~4% price increase from current levels. Any close below 3170 will negate this technical setup.
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Milan Vaishnav, CMT, MSTA | Consulting Technical Analyst | wwww.EquityResearch.asia | www.ChartWizard.ae
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Milan Vaishnav, CMT, MSTA is a capital markets professional with nearly two decades of experience. His area of expertise includes consulting in portfolio/fund 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 over 15 years experience in the Indian capital markets, he has provided clients with top quality independent technical research focused on India. He is currently a daily contributor to ET Markets and The Economic Times of India. He is also the author of one of India’s most accurate Daily/Weekly Market Outlooks – a Daily/Weekly Newsletter currently in its 18th year of publication.
