Last Updated on May 9, 2022 by Neera Bhardwaj
This article is authored by Kunal Rambhia, a fund manager at The Streets, a private fund. He has been in the equity market since 2010, performing various roles such as Associate Research Analyst, Research Analyst, and Associate Portfolio Manager. He has media appearances with CNBC and ET NOW. Kunal is also a visiting faculty in multiple colleges.
Technical analysis helps focus on price action and identify good opportunities amid chaos. I discovered one such opportunity with Tech Mahindra, which appears to be a clear segment leader. Herein I share all my observations!
Table of Contents
Weekly: Time cycle
On the weekly chart, we can see the correction period is 22 bars on average. A couple of instances show correction of 19 bars. One such corrective phase on the counter is the present one, where 18 bars are done as of now, and the possibility of reversal is high (based on empirical observation).
Weekly chart: Time cycle
The green curves seen at the bottom of the chart are phases observed in the past. Most significant tops and bottoms have coincided with curve end (time cycle correlation with price change). Alongside the previous chart, where 19 bar reversals have been noticed multiple times, this cycle coincides with phase change (Trend change). Bright possibility of bullish reversal from hereon!
Weekly: Price action
Very clear higher tops and higher bottoms are seen on higher timeframe charts from 2007 till now. A resistance line breakout was noticed first time in 2021. Generally, such massive breakouts are followed by “retesting of breakout”. Stock is down by approximately 28% from the top and nearing the same trendline (considering an attempt to retest the breakout). Worth considering this as a “Bargain buy opportunity”.
Weekly: Fibonacci and RSI
Price is forming higher tops and higher bottoms even in the recent past, highlighted by the green arrow. In contrast, the Relative Strength Index (RSI) forms lower tops and lower bottoms, creating “hidden bullish divergence”.
Not highlighting the entire Ichimoku as a short-term crossover of Kijun and Tenkan is likely. But worth observing Ichimoku Kumo Cloud, which is offering wonderful support to the price action. The future cloud remains bullish, and the last candle also confirms a sizeable reversal. It seems, again, a perfect “Bargain Buy”.
Daily: Price action and RSI
After making the top near 1800, the stock started its downward trajectory. By connecting tops and bottoms with trendlines, we can see a falling wedge formation on the price chart, a bullish formation. RSI is making equal bottoms alongside falling wedge, which confirms bullish divergence. The bounce in the last candle can be seen with volumes. A bright future seems ahead for the counter : )
Daily chart: MACD
Though Moving Average Convergence Divergence (MACD) is considered one of the lagging indicators in technical analysis, which confirms the trend, we can use the same indicator even to find divergences. Clearly, price is making lower bottoms, and MACD makes equal bottoms, which confirms bullish divergence (just the same as RSI). Also, MACD crossover is around the corner from extreme lows, adding icing to the cake.
Ratio chart: Techm v/s CNX IT index
The monthly ratio chart of Tech Mahindra and the CNX IT index is shown on the left. The ratio chart has been cleared within a symmetrical triangle formation for more than ten years. The triangle is also nearing its conclusion. Also, the recent bounce is right from the support zone, confirming the outperformance of the counter over the index. The correct chart is the same ratio chart on the daily timeframe. The last two trading sessions witnessed extreme bounce, confirming outperformance of the counter in the time to come.
Daily chart: Comparative chart
The chart shows the price action of TCS, Infosys, HCL Tech, Wipro, Mindtree and Tech Mahindra. It’s very clearly visible that all counters are down, except Tech Mahindra.
Putting it all together
On weekly charts, time cycles, change in polarity, 61.8% retracement with hidden bullish RSI divergence and Ichimoku cloud support can be seen. On the daily chart, falling wedge with bullish divergence on RSI and MACD likely outperformance of the counter on IT index on daily and weekly Ratio chart. ONLY the uptick counter on the comparative chart supports the bullish view. Therefore, one can say that Tech Mahindra can be a portfolio counter and may even outperform the entire IT pack in the time to come!
Statutory Disclosure: Kindly note that this update is only for educational purposes. It is safe to assume that my personal position, fund’s position, client’s position, and relative’s position may be open on the counter. Prefer to take the advice of your financial advisor before initiating any position.
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