The IT space is delivering some decent gains in today’s session, with the Nifty IT index rallying 0.97% to 27,328, by 1:57 PM IST. Many IT counties are showing some bounce after a heavy beating amid TCS (NS:TCS) and Infosys (NS:INFY) Q4 FY23 earnings report. However, one stock that should be on the radar of bulls is Tata Elxsi Limited (NS:TTEX).
The company operates in two segments - System integration & support, and software development & services, having a market capitalization of INR 39,177 crores. The stock jumped 5.3% to INR 6,626, delivering a massive breakout on the daily chart. In fact, the stock witnessed 2 different kinds of breakouts on the same day.
Image Description: Daily chart of Tata Elxsi with volume bars at the bottom
Image Source: Investing.com
Firstly, it surged past the neckline resistance of an inverse H&S chart pattern. This breakout marks the reversal of the prior subdued trend toward the beginning of a new uptrend. The inverse H&S is a very prominent reversal pattern and because it has been formed around the 52-week lows of the counter, the potential of a reversal could be high.
On the same day, the stock also managed to break through a falling trendline resistance on the daily chart. This is a 5-month-long trendline that was posing as a strong hurdle for the stock. Tata Elxsi shares touched this trendline a few times only to witness increased selling pressure which lead them to retrace toward the south. Today, this trendline is also breached which is another trend reversal signal.
The confluence of both these reversal signals, coupled with a sharp rally is painting a bullish picture on the stock. The volume in today's session has also been impressive. A total of 364K shares have exchanged hands so far, which is the highest one-day volume since 23 January 2023. It is also higher by 340% over the 10-day average volume of 82K shares.
On the upside, the stock could now travel to the next resistance of INR 6,800 which can be eyed as the first profit-booking level for long trades. Placing a stop loss below INR 6,200 seems sufficient to manage proper risk on the long side. The second hurdle for the stock is coming at around INR 7,200 which does not seem very hard, considering the beaten-down levels of the counter.
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