Despite the ever-depreciating Rupee, this sector has been showing gross relative underperformance against the broader markets for many months. In fact, globally as well, the technology sector has taken a severe beating in this calendar year; this was evident in the YTD performance of NASDAQ which has been one of the worst-performing indexes globally.

A similar trend was seen in the domestic markets as well. From the sectoral point of view, the NIFTY IT index has been one of the laggards this calendar year.

Speaking on YTD terms, while the broader NIFTY500 index has returned a positive return of 6.33%, the NIFTY IT Index has returned a negative return of (-21.47%) on a similar timeframe.

However, some strong signs are seen appearing on the NIFTY IT Sector Index that show that it may be in a process of confirming its reversal of trend in the near term.

The NIFTY IT index topped out in early January of this year when it marked its high at 39157.75. Following a brief consolidation just below that level, it saw a sharp decline and slipped under correction. It went on to lose over 12900 points (-32.89%) from its peak until it attempted to find its support near 26450 levels in June.

What followed after that was a technical pullback, and until October of this year, NIFTY IT Index tested this level on several occasions. This led to the formation of multiple support points near 26450 levels. It was this October onward that the NIFTY IT index started to inch higher; it moved above the 50-, and the 100-DMA in the process, and presently it is seen making attempts to move past the 200-DMA which is presently at 30239,

From other pieces of technical evidence present on the chart, there is a high possibility that the IT Index will eventually break above the 200-DMA; if this happens, it would confirm an end and subsequent reversal of the downtrend that this sector witnessed over the past many months.

The current levels also mark a classical double top; any move above 200-DMA will also lead to a breakout from this formation. RSI has marked a 14-period high which is bullish. The RS line against the broader markets has reversed its trajectory and remains above the 50-period MA.

The IT Sector is inside the leading quadrant of the RRG when benchmarked against the broader NIFTY 500 Index. Also on the weekly timeframe, this sector remains buoyantly placed inside the Improving quadrant while strongly maintaining its relative momentum against the broader markets.

Going ahead from here, so long as the NIFTY IT Index keeps its head above 29000 levels, it remains well-equipped to not only relatively outperform the broader markets in event of any consolidation but also provide strong leadership in the rising markets.

Foram Chheda, CMT