Technical Check: This largecap IT stock likely to hit fresh 52-week high if it stays above 50-DMA

Tata Consultancy Services Ltd (TCS) underperformed Nifty50 in last one year. The IT major rose by about 17 per cent compared to 25 per cent upside seen in the Nifty50 in the same period.

TCS with a market capitalization of more than Rs 13.8 lakh cr on the BSE hit a 52-week high of Rs 4045 on the BSE on 18 January post December quarter results but the trend quickly shifted sideways after the initial bounce.

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However, experts feel that the long-term trend is here to stay and as long as the stock is able to hold above the 50-DMA placed at Rs 3689 (hit on 27 January), and 3750, there is room for the stock to hit Rs 4251-4500, suggest experts.

The stock has fallen by about 3 per cent in 1 week and rose about a per cent in the last month suggesting that the stock has been a marked underperformer and has entered the oversold zone.

The S&P BSE IT index has fallen over 3 per cent in the last 1 week, and more than 7 per cent in the last month, data showed.

The stock is trading below its 30-DMA but above 50, 100, and 200 DMA. The 50-Days EMA is placed at 3732, Trendlyne data showed.

On the shareholding front, FIIs pared their holding from 15.37 per cent in the September quarter to 14.98 per cent in December quarter.

On the other hand, mutual funds increased holding from 3.1 per cent in September quarter to 3.32 per cent for the quarter ended December.

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The scrip chart belongs to the IT sector which has recently been beaten down very badly, in spite of pulling out surprises on the quarterly results. The underlying seems to have entered the oversold zone with the impending selling that has bombed the prices.

“Given the current state of the market, finding bounce backs from deeply oversold territory assumes greater safety net as compared to being behind momentum bets which are highly susceptible to overnight gap-up & gap downs,” Pushkaraj Sham Kanitkar, VP (Equities), GEPL Capital, said.

“The beaten-down bellwether with a strong fundamental backing, provides an ideal risk to reward ratio.  As can be seen from the chart, the longer-term chart of TCS corrected from 4050 in mid-January of the current calendar year to 3625 on this week’s expiry day,” he said.

The more interesting portion is the symmetrical formations that the chart is showing. The first 8 months of the CY 2021 saw an ascending triangle formation with prices retreating from the 3400 levels 3 times in a row.

A breakout past the level saw it fillip up to 4000 levels in September 2021, which was once again retested in the current month.

In the process, another ascending triangle is in the offing, wherein prices have bounced from progressive supports around 3450-3350 marked by the sky-blue rectangle, explains Kanitkar.

The rectangle assumes significance at it also houses the 200 DMA which is currently placed at 3476. The area also houses the double bottom around 3380, created in November 2021.

The short-term chart of TCS shows the second level correction on daily chart from 4050 in mid-January 2022 to 3625 in the current week.

“This correction has pushed the chart in a deeply oversold territory with a cut of close to 10%, and yet has continued to outperform the sector which got beaten down by 15% in a similar period,” explains Kanitkar.

“A daily close above 3690 level has helped the prices to claw back above the 50 DMA currently at 3690 as well. A move past 3750, will further confirm the pullback, and a breakout from the retracement with possible continuation to 52 HIGHs (4050), with further extrapolation to 4251. This may be aided further by upcoming buyback at 4500 levels,” he said.

An initial stop loss should be placed somewhere below 3380 which is the swing low; which can be trailed as the prices move up.