Technical Bits: TCS features as Bollinger band squeeze pick

Tata Consultancy Services Limited was picked by our Bollinger Band squeeze scanner which suggests that the stock is near a consolidation breakout. The Bollinger Band squeeze occurs when volatility falls to low levels and the Bollinger Bands narrow. A volatility contraction or narrowing of the bands can foreshadow a significant advance or decline.

The stock had formed bearish engulfing candle as on the weekend of October 5, 2018 and thereafter witnessed correction. The correction is halted near its short-term moving average, i.e. 50-week EMA and it coincides with downward sloping trendline support. Since then, the stock is trading with gradual higher tops and higher bottom. Currently, the stock is hovering around the downward sloping trendline resistance from the last 10 weeks. As of now, the price action has narrowed substantially and the stock is likely to give consolidation breakout in the coming days.

The short and long-term trend is positive, as the stock is trading above its 20-day EMA, 50-day EMA,100-day EMA and 200-day EMA. The 14-period daily RSI is currently quoting at 56.70, and it is trading above its 9-day average. The fast stochastic line is also trading above its slow stochastic line, which suggests bullish bias. The Average Directional Index (ADX) indicator on weekly time frame quoted around 10.02 and it is in a rising mode, which suggests the stock is likely to give a directional movement in the near-term.

In the near-term, the zone of Rs. 2,040 to Rs. 2,050 is likely to act as an immediate resistance as the downward sloping trendline is placed in this region. A decisive close above this level would lead to an extension of the pull-back toward Rs. 2,100, followed by Rs. 2,150. While any move below the level of Rs. 1,955 would be negative for the stock as it would result in a breach of upward sloping trendline formed by connecting swing lows from January 14, 2019.

On Monday, the stock of TCS closed at Rs. 2,031.30 per share, up by Rs. 30.90 or 1.54 per cent on BSE.