Daily Timeframe: After showing upside bounce back in previous session, the IT sector has witnessed a sharp decline on Friday (mainly led by steep weakness in index heavy weight Infosys).
- Presently, the sector has placed at the strong valuation support around 10525 levels, as per the concept of change in polarity. But this support is expected to break on the downside over the period of time.
- We observe a formation of consistent higher bottoms (blue dashed uptrend line) over the last 6 7 months and present decline could possibly form yet another higher bottom around 10300 levels in the next few weeks.
- Among sector participants, TCS, Tech Mahindra, Just Dial and HCL Tech are showing positive trend. Other stocks like Infosys, KPIT, Wipro, Mind Tree, OFSS and Tata Elxsi are showing negative trend.
Weekly timeframe: The IT sector has slipped into decline during this week as per larger timeframe and closed the week lower by around 77 points, as per w-o-w basis.
- Volatile swing movement occurred in IT sector this week, as we observe negative candle formation with upper and lower shadows. The underlying trend remains down and one may expect further weakness in the sector for next week.
- The sector has been moving in a larger ascending type triangle pattern (blue dashed horizontal and uptrend lines). As per this pattern, the sector is consistently forming higher lows and at the same time finding resistances at 10900 levels. Present decline could be in line with the formation of new higher bottom of the sequence.
- The underlying trend of IT sector is down and we are likely to see some more weakness for next 1 or 2 weeks down to10350-300 levels. The formation of triangle pattern and consistent higher bottoms with other technical aspects could be suggesting a possibility of new higher bottom in the sector for near term and that could in turn give us an opportunity for buy on dips.
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- Hence, one may look to buy this sector/sector participants on dips (down to 10350-10300 levels) and may expect upside bounce back from the lows for the potential upside target of around 10900 levels, for the next one month.