Last Updated on Feb 22, 2023 by Anjali Chourasiya
Markets are in a sideways consolidation phase and showing time correction. But as discussed multiple times in the past, the focus should be on stock-specific moves as many counters have come to extreme support zones and are showing good reversal with strength. One such counter is Tech Mahindra from the IT space. Let’s dive deep into the formations and understand the price action.
Table of Contents
Monthly: Price action
Since 2009, the price is clearly making higher tops and higher bottoms and is respecting the trend line, which is highlighted with red colour. Since 2011, we can see that there is one more inter trend line, which is highlighted with white colour, been respected decently. Both trendlines offer support to the counter with a common zone which can be considered the best support zone to accumulate for the long term.
Monthly: RSI
A Relative Strength Indicator (RSI) is a momentum indicator, and it confirms the strength of the price with respect to the recent past. On the monthly chart, RSI came down to 50 levels and now showing the reversal again. Along with price action, if RSI also turns upward, that will confirm this trend in the upcoming positive rally.
Monthly: MACD
Moving Average Convergence Divergence (MACD) is a lagging indicator that confirms the trend after emergence. There are multiple ways of looking at MACD. Zero line in MACD has a lot of importance. Presently MACD has reached the zero line after a sizeable decline and turned flat. Zero line is expected to offer support to MACD, and that seems possible by looking at price action too. This seems a perfect bargain buying from a long-term perspective.
Weekly: Price action
On weekly price action, we can see a white trend line. This line has acted as resistance multiple times in the past and is now offering support since 2021. This change in the polarity approach of the trend line is well respected by price so far and is witnessed by the price volume action too.
Weekly: Fibonacci retracement
On the weekly chart, I considered the last whole advance to understand the depth of correction. Wonderful to see consolidation and then finally a bullish candle with volume support right from the 61.8% retracement zone. 61.8% is the golden ratio and highlights an extremely oversold counter. Reversal from the present zone can be taken as a healthy correction.
Weekly: RSI
Price remained in a sideways consolidation for a long time and created a base formation. But at the same time, RSI started inching upward and creating a bullish RSI divergence. A consolidation breakout is “almost” on the cards, with the last candle being extremely bullish with sizeable volume (which seems highest in the last couple of months). Certainly worth keeping eye on consolidation breakout to initiate fresh positions.
Weekly: MACD
MACD, like RSI, has also created “bullish divergence”. MACD crossover is the second confirmation of bottoming out. Zero line crossover will confirm the emergence of a new bullish rally from the present zone. Remember, MACD is a lagging indicator which is helpful for positional traders in the market.
Weekly: Bollinger Bands
Bollinger Bands serve the purpose of traders in the best possible way. But one can even use it for taking judgement on positional trades. Set up of squeezing bands help to identify the emergence of a new trend. Here we can see that after the squeezing bands, the price has given a break out of the higher band. This confirms the emergence of the bullish rally. With a trailing stop of 20 EMA, one can continue holding the position and ride the rally.
Daily: Ichimoku
Ichimoku is an equilibrium indicator. There are multiple ways of using this indicator. On the present set-up, we can see Tenkan – Kijun Crossover, Chikou Span above price and future cloud turning almost bullish. All signals the possibility of a new trend from the present zone.
Ratio chart: Tech Mahindra Vs Nifty IT Index
We can see on the ratio chart that the Tech Mahindra and Nifty IT index ratio chart is respecting a particular support trend line since 2013. Presently, it went below the trend line but recovered very sharply. This particular behaviour is confirming the likely outperformance of Tech Mahindra.
Putting it all together
After evaluating monthly timeframes with price action, volumes and indicators, and weekly price action with RSI, MACD, and Bollinger Bands, I feel there seems to be a lot of potential in Tech Mahindra to outperform the whole basket. Daily timeframe with Ichimoku and comparing the strength of Tech Mahindra with the Nifty IT Index suggest the same. One can certainly eye on the counter from a mid to long-term perspective as this counter seems one of the best candidates to be in the portfolio.
Statutory Disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, my fund’s position, my client’s position and my relative’s position may be open on the counter. Prefer to take the advice of your financial advisor before initiating any position.
- Avenue Supermarts: Is Dmart Providing Shopping Opportunities for Portfolios? - Mar 29, 2023
- GMR Airport Infra: Counter on Runway To Fly Soon! - Mar 21, 2023
- SW Solar: Is The Counter A Good Bet From Long-Term Perspective? - Mar 14, 2023
