TCS needs to breakout over Rs 3,150-level for fresh rally, chart says

There is an "Inverse Head and Shoulder" pattern getting established on the daily chart. Technically, this pattern breakout over Rs 3,150 levels would add aggressive bets on the stock.

The IT sector has started the Q2 earnings season on a positive buzz, with TCS on Monday reporting 8.4 per cent year-on-year (YoY) profit beating street estimates.

Tata Consultancy Services (TCS), the IT services and consulting company's reveneue grew 4.84 on QoQ basis and declared a second interim dividend of Rs 8 per share.

The Q2 numbers topped Bloomberg estimates, which had pegged revenue at Rs 54,932 crore, and net profit at Rs 10,294 crore. In US dollar terms, revenue grew 4 per cent sequentially in constant currency. READ MORE
 

This morning, shares of TCS began the day on a negative note, down 0.59 per cent, after a brief pullback in next 30 minutes, the stock failed to gain momentum and lost further ground dropping over 2 per cent so far on Tuesday.

Tata Consultancy Services Ltd (TCS)
Outlook: Base formation may boost upside bias

Shares of Tata Consultancy Services trade 22 per cent lower from the historic peak of Rs 4,006 registered in January this year. The stock has seen a fair bit of correction with every reversal encountering a sell-off on subsequent highs. 

The stock did make attempts to rally towards the 200-day moving average (DMA) post conquering 100-DMA this August, but the volumes ruined the sentiment, as they failed to show sturdiness. Lack of support from volumes resulted in the stock slipping back to lower levels, and the bears tightening their grip. 

While the trend is sluggish, the price action denotes a base formation below the Rs 3,000-mark. Only on a breach of the Rs 2,800-level, the stock could open the doors for its next leg of breakdown. 

When observed from a larger perspective, there is a positive divergence of the Relative Strength Index (RSI) on the daily chart and this scenario reveals a build-up of underlying strength.

In addition, there is a “Inverse Head and Shoulder” pattern getting established on the daily chart. Technically, this pattern breakout above Rs 3,150 level would add aggressive bets on the stock. 

If the stock thrives to hold current momentum, the price action might see a run-up to Rs 3,430 mark (up over 11 per cent from current market price), which is the present 200-DMA.  CLICK HERE FOR THE CHART