Daily timeframe: The IT sector has been moving in a sideways trend over the last 2-3 weeks and is showing a type of rising wedge type pattern. But, the rising wedge patterns are known for downside breakouts from the highs.
- Presently, the sector is consistently tagging the upper end of ascending channel pattern (green up sloping parallel lines) around 10800 levels, which is indicating a possibility of some more upmove from here. This seems to be supported by the indications of daily momentum oscillators like +DMI & ADX.
- The key sector participants like Infy, TCS, Wipro, Tech Mahindra, HCL Tech, OFSS, Mind Tree and Just Dial are all either moving in line with consolidation or making attempt to move above the sideways.
Weekly Timeframe: The IT sector has witnessed a smart upside breakout of the key overhead resistance of around 10650 levels (green dashed horizontal line, as per the concept of change in polarity) during last week.
- Though, IT sector has closed above the hurdle, but the strength of upside momentum seems not expanding on the breakout as per the significance of the area (as there is no formation of long bull candle). Hence, we need sharp follow through upmove by next week to have further positive impact of the breakout, otherwise this could possibly turn out to be a false upside breakout.
- Weekly 14 period RSI has now placed at the key upper levels of around 60, which is going to be a hurdle for this indicator. Previously, the weekly RSI has turned down from near the resistance of 60 levels in few occasions. Hence, the weekly RSI sustaining above 60 levels could only mean strengthening of upside momentum in the IT sector ahead.
- The underlying trend of IT sector as per smaller and larger timeframe is positive and some more upmove is likely by next week. The indications of larger timeframe is raising concern on the sustainability of this sector at the higher levels, which could possibly lead to weakness from the highs.
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- One may look to continue with long positions in IT sector/components for next week, but be cautious at the highs and look to book profit of long positions at the higher levels.