Nifty IT index is on the verge of breaking out from a seven-month consolidation. Preceding this consolidation the index had rallied 52 % between Sep 2017 to Sep 2018. Both INFY and TCS will declare their quarterly results on 12 April 2019. What will happen next, a breakout or back to the range will largely depend on their financial performance.
Intermediate Term –
- Sideways consolidation in a seven month Cup & Handle formation after a strong uptrend.
- Price momentum is increasing but the relative strength wrt Nifty is yet to show followup.
Cup & Handle Pattern –
The Cup with Handle is a bullish continuation pattern that marks a consolidation period followed by a breakout. It was developed by William O’Neil and introduced in his 1988 book, How to Make Money in Stocks.
As its name implies, there are two parts to the pattern: the cup and the handle. The cup forms after an advance and looks like a bowl or rounding bottom. As the cup is completed, a trading range develops on the right-hand side and the handle is formed. A subsequent breakout from the handle’s trading range signals a continuation of the prior advance.
Short Term –
- Price at the top end of the range but the momentum for the last 10 days is strong.
- KST for the price & RS has given a positive crossover near/below the zero lines, plenty of space for expansion on the upside.
- RS of the price is moving above the green MA reflecting strong outperformance in the last 10 days.
- The depth of the pattern is 15% implying a good upside on the breakout.
Broadly speaking the results of INFY and TCS will be the trigger for the next move. Unless they totally disappoint, a breakout is the most likely outcome.
Click here for the 7 Feb 2019 update.