Thursday, December 31, 2015

Stock Chart Pattern - Infosys Ltd. (An update)

Bobby Hebb wrote the song 'Sunny' within 48 hours of a double tragedy on Nov 22, 1963. That was the day popular and charismatic US President John Kennedy was assassinated - and Bobby's elder brother was stabbed to death outside a Nashville nightclub.

What does that have to do with the chart pattern of Infosys? Well, Infosys also suffered a double tragedy - due to their disastrous policy of rotating the company's leadership among the original promoters.

As mentioned in the previous update, the two promoter-CEOs that followed Narayanamurthy and Nilekani neither had the dynamism nor the leadership skills required for a company with global aspirations.

With the induction of a professional manager with leadership experience in a global company (SAP), Infosys is ready to sing the following line from the song: "Now the dark days are gone, and the bright days are here". 

Should they? Let us see what the chart foretells.



The closing chart pattern of Infosys Ltd. touched a low of 553 in Apr '13 (adjusted for two subsequent 1:1 bonus offerings - marked by blue bells - in Dec '14 and Jun '15). 

The stock formed a 'double top' reversal pattern at around 950 (in Jan '14 and Mar '14). Negative divergences in three of the four technical indicators (marked by blue arrows) led to a correction within a 'falling wedge' pattern with bullish implications.

An upward breakout from the wedge started a fresh leg of the bull rally that culminated with another 'double top' reversal pattern at around 1180 (in Aug '15 and Oct '15). 

Once again, negative divergences in three of the four technical indicators (marked by blue arrows) led to a correction below the three daily EMAs, but the stock formed a small 'double bottom' reversal pattern and bounced up.

Daily technical indicators are in bullish zones, but giving mixed signals. The stock price has been consolidating sideways within a large 'rectangle' pattern between 960 and 1180 (i.e. 220 points) for the past 14 months.

Rectangles are usually 'continuation' patterns, with price target implications. An expected upward breakout can take the stock to a target of 1400 (= 1180 + 220).

But a 'rectangle' can also be a 'reversal' pattern - in which case, the downward target will be 740 (= 960 - 220). 

Since the stock is trading in a bull market (above its three EMAs), one can use the 'consolidation' to accumulate with a stop-loss at 1020.

[Wishing all blog visitors, blog followers, blog subscribers, twitter followers and newsletter subscribers a very happy and prosperous 2016.] 

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