2023-11-17 13:57:32 ET
Summary
- Infosys stock has found an important low and is projected to begin a much larger rally phase next.
- The stock already has corrected downward in price, alleviating excessive valuation concerns.
- We discuss why it's sentiment that will drive the stock to higher highs, and where caution is advised if key support levels are violated.
By Levi at Elliott Wave Trader, Produced with Avi Gilburt
This is a setup that we have been closely watching for the past several weeks. And now, it appears to have the parameters we have been looking for to suggest that the next major rally phase is indeed underway. There’s some excellent information regarding the underlying fundamentals and the larger technical picture. As well, we discuss what truly moves stocks. Here’s the 411 on Infosys ( INFY ).
(A quick side note: This article discusses the chart for INFY on the India Stock Market, but the general structure would apply to the ADR listed on the NYSE as well.)
First, The Fundamentals With Lyn Alden
“I publicly analyzed Infosys back in February 2017 and was bullish on it. Since then, it has substantially outperformed the S&P 500.
However, part of the outperformance consists of higher valuations. I was bullish on it when it traded at the low end of its historical valuation range, but now that it's trading at historically above-average valuations, it's less compelling now than it was back then.
The good news is that the stock has spent the last two years correcting downward in price, which has alleviated most of the excessive valuation. I'm not sure that it's quite at an attractive risk/reward scenario yet, but it's back down to the realm of reasonableness, and so whenever technicals start indicating a strong uptrend is likely in place, the fundamentals would likely be supportive of that view. Until then, it remains unclear but interesting.”
Let’s Look At What The Technicals Are Telling Us
Garrett Patten is our lead analyst. INFY is one of the main stocks that he tracks and actively updates for our membership. The current setup in INFY is as illustrated here:
It would appear that price has put in an important low at the 1185 level struck back in April of this year, a move apparently catalyzed by the earnings release corresponding to the same date. What’s interesting about the sharp drop, and now recovery, is that key support held. Did that move become accelerated because of the reaction to the earnings release? Were the forward looking statements released at the same time somehow responsible for the gap down?
Well, while we can always speculate about the why’s, more important in our methodology is the what and the where. We're able to identify the structure of price on the chart and this gives us key support and resistance levels as well as the path most likely to unfold ahead.
So, at this time we see INFY as having found that important low. And as you can see on the chart provided by Garrett, the next major high is projected to be at 2000 or higher.
Risks : should price move back below 1350 instead then it would give us come caution in the near term. Also, a larger move under the April low would require a revision to this bullish scenario.
Why Does This Work?
Some may look askance at Elliott Wave theory. Others have had, shall we say, rather unpleasant experiences with the implementation of the theory. It was this exact type of experience that impelled Avi Gilburt to start providing this analysis to the public some 12 years ago. So, yes, it happens, unfortunately. But that is not proof-positive that this methodology does not work.
We would offer to the readership that if you take an honest examination of how we implement and practice Elliott Wave theory on a daily basis, it may just change your current view.
Avi has published various articles regarding in-depth studies on what pushes and pulls price. In them, he cites quite a few market studies and observations from that research. The ultimate conclusion would surprise the most avid trader today:
"In spite of the simplicity of our model and of the strategies of the single participants, and the outright exclusion of economic external factors, we find a market which behaves surprisingly realistically. These results suggest that a stock market can be considered as a self-organized critical system: The system reaches dynamically an equilibrium state characterized by fluctuations of any size, without the need of any parameter fine tuning or external driving.”
What Does This Mean For You?
Note this concluding comment from Avi in the above referenced piece:
"Many investors/traders, until now, view this issue as another form of the 'chicken or the egg' argument. Most even believe that the market is driven by the news. However, in truth, when you take an honest look at the facts, you should come to one conclusion: Social mood is what drives markets and not the news. In fact, it is negative social mood that usually is the cause of negative events later reported in the news. Furthermore, since the best barometer of social mood is the stock market, when we see the market action suggesting negative social mood, we should actually expect negative news, and vice versa.
Ultimately, what this means for the INFY chart is that sentiment should indeed carry price to that higher high projected at the 2000 level or above. Yes, there are times where our primary path as illustrated does not play out. It's in these cases where key support levels are identified and that, if violated, tell us when to shift our stance.
There are many ways to analyze and track stocks and the market they form. Some are more consistent than others. For us, this method has proved the most reliable and keeps us on the right side of the trade much more often than not. Nothing is perfect in this world, but for those looking to open their eyes to a new universe of trading and investing, why not consider studying this further? It may just be one of the most illuminating projects you undertake.
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For further details see:
Infosys: Details On The Stock's Next Move