Technical Analysis

Infosys: Go short only below Rs 600

Akhil Nallamuthu | Updated on October 25, 2019

Infosys had posted a good set of numbers in second quarter of the fiscal, much better than its nearest competitor, TCS Vivek Prakash

The Infosys stock faced a shocker this week and crashed by 16 per cent on Tuesday morning. The reason was a letter from a whistleblower group that accused the CEO of unethical practices.

But after registering a low of ₹615.1 on Wednesday, which is a 10-month low, the stock is trying to stabilise.

Technical analysis

Infosys has strong support in the ₹618 and ₹638 band, which has cushioned its recent decline. The 50 per cent Fibonacci retracement level of the prior bull trend coincides at ₹638, making it a significant level.

But the reversal from this support zone has not been too convincing so far. There is immediate resistance at ₹675. The inability to move beyond this level will imply that the stock could turn weak and test its 52-week-low of ₹599.8 in the coming days, before declining to ₹590.

But a move above Rs 675 can take it to ₹700, and beyond that to Rs 760.

Traders with a short-term perspective can go long on a move above Rs 675, with a tight stop-loss.

 

Fresh short positions can be initiated if the stock declines below Rs 600.

The Infosys stock has been on a strong uptrend over the past one year. From a low of ₹599.8 in November 2018, the stock has appreciated by about 40 per cent and marked a life-time high of ₹847 in September 2019. It gradually declined from those levels and closed at ₹767.8 last Friday.

Background

The reason for the current bout of weakness was a couple of letters sent by whistleblowers to the US Securities Exchange Commission (SEC). One dated September 20 was sent on September 27. The other, an undated letter with proof for the claim, was sent to the SEC on October 3.

The letters were also sent to the company on September 30. The company released a statement on October 21, which states that the company has received anonymous whistleblower complaints and the same have been placed before the Audit Committee in line with the company’s practice.

With the investigation by various institutions, including the SEBI, internal audit committee and the US SEC, currently in progress, it might be too soon to bet on a sustained bounce back. Further revelations can trigger a new wave of down-side.

Published on October 24, 2019

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