Top/Down Take: Mindtree (MINDTREE)

JC Parets
July 30, 2022

One of the processes we absolutely love to follow is the Top/Down Analysis approach. In this process, we identify the larger trend, zoom in, and analyze the characteristics that stand out. We look at the asset classes, identify the strongest one, and then deep dive. Next, we look at sectors and identify the pockets of outperformance. Finally, we look at an actionable trade that suits our risk and reward parameters.

So let's see what we have this time around!

Step 1 is to look at the stock universe that we follow. Nifty 500 created a new 52-week low in June, while average stocks didn't form a higher number of new 52-week lows. It's reflected in the High low index's divergence, which resulted in a strong bullish move.

Here 14,200 is a strong polarity support level. The trend for broader stocks is bullish as long as it sustains above 14,200.

Click on the chart to zoom in

Nifty IT has been in a downtrend throughout this year with a decline of 25%. Will this change now?
Interestingly it's forming a base and has also closed above the intermediate gap of 2%. We're expecting a short-term reversal if it holds above 28,577. Keep in mind, that the overall trend is yet to turn bullish. We're only referring to intermediate trends here.

After a persistent down move, IT relative to Nifty 100 is near a critical support level. IT holding above it would be the evidence of brewing strength.

It's time to look at the stock that has made its way to this analysis.

Mindtree has formed a base for three months now. Unlike Nifty IT, it's trading above the June high. It is clearly outperforming the IT pack. The momentum indicator is also moving towards the bullish regime. Mindtree has been one of the first names to reverse course and continues to act as a leading indicator for the sector at this point.

We are positive above the key Fibonacci level at 3,233, with a target near 4804.

Here's Mindtree on a relative basis for some perspective.

It has been on a weakening streak for over three quarters. Current levels provide a precise level from a reversal perspective. Similar to the absolute price, the ratio closed above the recent base.

It's an early indication for resumption of up move.

Bouncebacks are common in a downtrend. Every bounceback looks like a buy-the-dip opportunity, but real trouble starts when it continues to dip lower.

The downtrend of Nifty IT has not changed. We are looking for a potential pullback setup at best. So, we should strictly check our risk management level in case our current thesis fails.

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

Allstarcharts Team

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