Published on: May 16, 2024
The Nifty IT index has been underperforming the benchmark Nifty50 since February 2024. This trend comes as sectors like banking, FMCG, pharma, and auto have taken the lead in driving the Nifty50 upwards. However, recent technical indicators suggest this trend might reverse, signalling a potential bottom formation for the Nifty IT index.
Signs of Reversal in Nifty IT
A bear trap pattern with a 0.25% x 3 box size has emerged on the 60-minute Point and Figure (P&F) chart. This pattern is characterised by a false breakout below a previous support level, followed by a strong upward movement, which has now turned bullish. The price breaking through the last high swing confirms this bullish reversal.
Nifty IT Index, P&F 0.25% X 3, 60mins
Source: Trade Point
Additionally, the P&F chart indicates a Triple Top Buy pattern. This pattern is likely to break out with an hourly close above 33,550. If this breakout occurs, it would signal a strong bullish trend, suggesting that traders and investors should start focusing on the IT sector.
Strategy for Passive Investor
Focusing on sector-specific ETFs can be a strategic move for those who find stock picking challenging in the current environment.
One such ETF is the Nifty IT Bees, based on the Nifty IT index. Investing in this ETF allows investors to gain exposure to the overall performance of the IT sector without choosing individual stocks.
Nifty IT Bees, P&F 0.25% X 3, Daily
Source: Trade Point
The daily chart of Nifty IT Bees also shows a bear trap pattern. This pattern formed at the 38.20% Fibonacci retracement level of the previous rally, which is a critical level of support. The bear trap at this Fibonacci level adds credibility to the potential for a bullish reversal.
Conclusion
The Nifty IT index is showing significant signs of a bottom formation. The bear trap pattern on the 60-minute P&F chart and the Triple Top Buy pattern suggest a strong bullish trend is on the horizon. Investors should consider focusing on the IT sector, and one of the best ways to do this is through the Nifty IT Bees ETF, which provides broad exposure to the industry.
