[Chart Of The Week] Nifty IT Is Testing A Key Level

Here we're looking at the daily chart of the Nifty IT Index. The strongest stocks/sectors/assets tend to consolidate ABOVE their price objectives, not below them, and that’s exactly what we’re seeing in the Nifty IT Index.

Click on chart to enlarge view.

A lot of people missed out on the rally in these stocks over the last 6 months and have been waiting for an entry on the long side. Last week the index itself and a lot of its components tested key levels successfully and gave us a clear point of reference to move forward with.

In other words, we know exactly where we can define our risk against and begin to test the waters again on the long side

Here's a good example in Birlasoft, which is pulling back towards its initial breakout level of 170 while momentum stays out of oversold territory. As long as prices are above that level, buyers are still in control.

The same can be said for Coforge Ltd., which has pulled back towards its initial breakout level near 2,000. If prices are above that level, we need to be erring on the long side.

These are just two of the many many examples we're seeing among IT stocks. When we have strong absolute and relative trends, we continue to buy pullbacks the market gives us until that stops working.

"If it ain't broke, don't fix it."

If/when the index and/or the individual stocks we're trading in the sector start breaking their risk management levels, we'll take our small losses and move to the sidelines.

But with prices above a rising 200-day moving average, momentum in a bullish regime, and well-defined risk levels, the benefit of the doubt remains in favor of the bulls.

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

Allstarcharts Team