INFY Stock Has Epic Upside Stock Price Potential

infosys stock
iStock.com/Jae Young Ju

INFY Stock: Anticipating a Breakout

If we brush aside the tensions currently being created by the trade war, there is still a lot to be bullish about in this market. For instance, the small-cap stocks continue to forge new highs, which is a sign that there is still inherent strength within this market, supporting the notion that a bull market is still in development

I am focusing on Infosys Ltd (NSE:INFY) stock, which is a small-cap stock,  because I have the inclination to believe that Infosys stock is setting up to make an epic move toward higher INFY stock prices.

My beliefs are centered around a number of technical indications currently suggesting that higher prices are likely.

The first indication suggesting that higher prices are likely is a complete technical price pattern, which is highlighted on the following Infosys stock chart.

Chart courtesy of StockCharts.com

The technical price pattern highlighted on the INFY stock chart is a descending channel.

This technical price pattern is characterized by price action that contains a series of lower lows and lower highs. This price action creates peaks and troughs. Connecting them creates two downward-sloping trend lines that define this pattern.

These trend lines not only define the pattern but they also pinpoint where price support and price resistance reside. This is very pertinent information because once one of these levels is breached, the stock price is expected to sustain a move in that direction.

On June 6, 2018, INFY stock broke above resistance, completing the pattern and suggesting that higher Infosys stock prices are likely to follow.

This completed price pattern is actually part of a larger wave structure that is reinforcing the notion that higher INFY stock prices are on the horizon.

This wave structure and the influential momentum indicator that has been supporting it are highlighted on the following Infosys stock chart.

Chart courtesy of StockCharts.com

This INFY stock chart illustrates the wave structure and the influential momentum indicator that has been supporting the current advance.

This wave structure consists of impulse waves and consolidation waves.

The waves highlighted in green are impulse waves, and they are advancing in nature. These waves capture the stage in a bullish trend when a stock makes a sustained move toward higher prices.

The wave highlighted in purple is a consolidation wave, and it is corrective in nature. These waves capture the stage in a bullish trend when a stock corrects and refrains from advancing.

These waves feed off each other, creating the price action necessary to create and sustain a bullish trend.

The descending channel doubles as a consolidation wave, and its completion implies that an impulse wave is now in development. This suggests that a sustained move toward higher Infosys stock prices is now in development.

The development of this impulse wave is currently being supported by the moving average convergence/divergence (MACD) indicator.

MACD is an influential momentum indicator that is used to distinguish whether bullish or bearish momentum is influencing the price action in a stock. Bullish momentum implies that a stock is likely to appreciate, while a bearish momentum implies that a stock is likely to depreciate.

A stock cannot sustain a move in either direction unless the appropriate level of momentum is supporting it, which is why the waves within this wave structure have coincided quite nicely with this momentum indicator.

For instance, in October 2017, a bullish MACD signal correctly implied that an impulse wave was in development. In March 2018, a bearish MACD signal confirmed that a consolidation wave was in development.

The completion of the consolidation wave has coincided with a bullish MACD signal. Together, these signals suggest that a sustained move toward higher INFY stock prices is now in development.

This is extremely important information because it strongly suggests that the very large technical price pattern highlighted on the following Infosys stock chart is approaching completion.

Chart courtesy of StockCharts.com

The very large technical price pattern highlighted on the INFY stock chart that is approaching completion is a cup-and-handle price pattern.

Cup-and-handle price patterns are characterized by two distinct troughs, where the first trough is always much bigger than the second. These troughs were created because a significant level of price resistance prevented the stock price from advancing beyond it.

This significant level of price resistance currently resides at $18.50, and it was first established in March 2000.

This is a huge pattern that has been in development for over 18 years. The size of the pattern is directly related to the size of the reaction that is expected to follow once the pattern is completed.

From a linear perspective, once the pattern is completed, it will imply that $35.00 is a viable price objective. If you’re wondering, this objective was obtained by taking the depth of the cup and extrapolating that value above the level of price resistance that defined the cup-and-handle price pattern.

The indications I highlighted earlier are already implying that higher INFY stock prices are likely. So it’s only a matter of time before Infosys stock closes above resistance, completing the cup-and-handle price pattern, and higher prices prevail.

Analyst Take

Infosys stock is on the verge of completing a very large technical price pattern. l have the inclination to believe that this pattern will be completed in the not-too-distant future, and as a result, much higher prices will follow. These beliefs are currently being reinforced by a number of technical indications currently auguring for higher INFY stock prices.