Markets
One sector, three breakout stocks. Can you take the bull by the horns?
Summary
- Trading trends can provide more low-risk, high-reward opportunities than simply chasing the flavour of the month.
While the market is trending bullish, sector rotation is keeping traders on their toes as they look to catch high-flying stocks. But rather than chasing the latest movers, I believe in trading the trend—a strategy that can offer low-risk, high-reward opportunities. One sector that stands out amid this bullish momentum is digital.
In this article, I will walk you through the chart setup of the Nifty India Digital Index and examine three stocks from the index that are breaking out with solid technical setups.
Nifty India Digital Index
The Nifty India Digital Index tracks companies at the forefront of India’s digital transformation. It reflects the rapid growth of India’s digital economy, encompassing everything from IT services providers to tech innovators and telecom giants.
On the 0.25% X 3 daily point & figure (P&F) chart, this index has a history of long consolidation phases followed by powerful breakouts. These breakouts tend to occur every few years, providing good entry points for investors. This year saw a significant breakout from a third consolidation phase, with an anchor column (circled in green) symbolising a robust bullish trend.
Before the recent breakout, the index had formed a ‘bear trap’ pattern—a bullish signal in P&F charting. This false breakdown traps sellers and is typically followed by strong upward momentum. The most recent move has validated this pattern, signalling a bullish breakout.
Here are three constituents of this index that are breaking out on the charts.
1. TCS
Tata Consultancy Services, one of the world’s largest IT service providers, has played a pivotal role in India's digital transformation. Known for its consistent growth and innovative leadership, the company is a cornerstone of the Nifty India Digital Index.
History appears to repeat itself on the 1% X 3 daily P&F chart. The stock has broken out of a multi-year consolidation phase, with adouble-top buy pattern and a strong bullish signal in P&F analysis. The stock has surged past its long-term resistance levels, signalling it is in the midst of a potentially powerful uptrend.
What is a P&F chart?
A point-and-figure chart is a charting method that Xs to show bullish moves and Os for bearish moves. Unlike traditional time-based charts, P&F charts focus solely on price changes and are considered "noiseless" as they filter out minor price fluctuations, highlighting only significant trends and reversals. The lack of a time axis gives a clearer picture of supply and demand dynamics, helping traders make more informed decisions.
Adding to the bullish narrative, the D-Smart indicator, which defines the trend, has flashed a buy signal. This indicator, which measures the stock’s relative strength, reinforces the view that momentum is on TCS’s side.
2. Bharti Airtel Ltd
Bharti Airtel is a dominant mobile and internet service company. Its strategic expansion into 5G and digital services has placed it at the heart of India’s digital infrastructure.
On the chart above, Bharti Airtel is building what can be described as a tower. The stock is creating higher highs and higher lows, a classic Dow Theory bullish structure. These movements indicate sustained strength and are often signs that the stock is gearing up to continue its uptrend.
Each pullback to the 50DEMA channel—formed using the 50-day exponential moving average’s high and low bands—has been met with strong buying interest. This channel acts as an accumulation zone, where bulls step in to buy the dips, supporting the stock’s continued rise.
Furthermore, the relative strength index (RSI) shows a bullish crossover above its median line in the lower panel of the chart, indicating that momentum is building in the stock. With these signals aligning, Bharti Airtel could potentially drive the index towards new highs.
3. Cyient Ltd
The stock of Cyient, a global technology and engineering company, has gained traction in the second half of 2024 after a sluggish start to the year, and is now breaking out on the charts.
The stock recently witnessed a trendline breakout from a lower-high-lower-low structure to higher-highs-higher-lows structure. This marks a significant change in market sentiment, indicating that the stock is now in an uptrend.
Before this breakout, a double bottom pattern had formed, a classic base-building signal that the stock was preparing to head higher. The confirmation came with a bullish flag breakout, further reinforcing the momentum. Readers looking for a stock with a potentially strong recovery should keep Cyient on their radar.
As always, however, remember that these are just signals. The price movements of stocks are determined by many other factors as well.
Note: The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educational purposes only.
Brijesh Bhatia has more than 18 years of experience in India's financial markets as a trader and technical analyst. He has worked with the likes of UTI, Asit C Mehta and Edelweiss Securities. He is presently an analyst at Definedge.
Disclosure: The writer or his dependants may or may not hold the stocks/commodities/cryptos/any other asset discussed here as per Sebi guidelines.
