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The Tech Reversal – II

Mukul Pal · May 5, 2009

infosys
This is what we said on 14 JAN.
“We are betting on a turn here. CNXIT has also shown a move up in ranks in performance over periods of 6 months, 3 months and 1 month. It has come from a negative of -38.16% over 6 months to a positive move of 3.47% over the last month. The index has moved up despite all negative news and a sector leader going bust, a classic proof of relative outperformance.
Apart from the fact that there is a lot of negative sentiment extremities linked with the sector, the CNXIT has been falling for more than 24 months. Even from an annual cycle perspective, a bounce is due. We should also keep in mind that a sector index is different from a company, a company can go bust, but a sector failure is more in the mind than real. Because as individuals we may perish but as a group we innovate, survive and thrive. To assume a sector failure from current levels is like assuming that the drunkard would never reach home, but then he surprises.”
What happened was that CNXIT made a low on 21 JAN (2,097) and breached the respective low marginally on 03 MAR (2,002). Where are we now? 50% up. We also have been carrying an ending diagonal formation all this while since the reversal started (slide 5).
Where are we going now? The illustrated chart is a pair performance cycle between Infosys and CNXIT. Like we have said it prior, everything is cyclical, including the performance between Infosys and CNXIT. The blue chip is ‘Growth’ compared to the ‘Value’ the Index offers. And value generally outperforms market at a market bottom, like the case here.
Now where is the performance CYCLE? CNXIT has reached an outperformance top against Infosys and CNXIT should underperform Infosys or in other words CNXIT should correct more than Infosys. After a 50% rise and prices gapping higher, we rather bet on this then keep herding about a recovery which is already two months old. We really don’t want to forget the old adage regarding MAY.
 

Exuberanta irationala
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