[Premium] Technology Issues Continue

JC Parets
May 23, 2019

We've spoken about the lack of trend in the Major Indexes for a while now, but another theme that's becoming more and more pervasive is the weakness in Tech stocks.

Let's see how we're going to approach it.

It started with the Nifty IT Index confirming a failed breakout and bearish momentum divergence by closing back below 16,200 a few weeks ago. As long as prices are below that level, the trend is sideways at best.

Click on chart to enlarge view.

Here's the Nifty IT Index vs. Nifty 500 ratio putting in its first lower high as prices break below their 200-day and momentum heads back toward oversold territory after failing to get overbought. This action is confirming a trend reversal and signaling continued underperformance from IT.

Tata Consultancy is the largest holding of the index and continues to consolidate after failing to get above its 2018 highs with the sector index.

Other former leaders like Wipro Ltd. are confirming a failed breakout, suggesting further short-term weakness.

HCL Technologies is back toward the 1,060 level after failing to hold above its 2018 highs.

Tech Mahindra is also filling its gap and testing support at 750 as momentum gets oversold.

Infosys Ltd. is extremely heavy, pressing on its 708 support level for the fourth time. If prices break that level, they can quickly fall back to longer-term support near 640.

FirstSource Solutions has been a laggard and looks like a potential short opportunity as long as prices are below 54.25. If prices are below that level, this downtrend is intact and the next level of potential support is near its 2018 lows of 39.

Oracle Financial Services Software is another stock we can be short on a break of 3,390, with a downside price objective of 2,795.

Tata Elxsi could also see some mean-reversion back toward 949 which would provide a nice entry on the short side. For now, neutral is best.

The one standout in the sector remains Just Dial Ltd., which we've liked on a breakout above 620. Well, we finally got it and want to be buying any weakness back toward that level in the weeks ahead. Our first target is 920.

The Bottom Line: IT weakness continues to be a significant problem for the broader market. It's one of the largest sectors, and until it gains its footing, it'll be a headwind for stocks in general.

Given the evidence we're seeing which suggests continued underperformance, we can either be avoiding the sector on the long side (as we have been since many stocks were below our risk management level) or shorting the weakest names where our risk is well-defined.

Thanks for reading and please let us know if you have any questions.

Allstarcharts Team

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