On-balance volume (OBV) is a powerful technical indicator that measures buying and selling pressure by tracking volume flow in relation to price movement. OBV aims to project a security’s price movement based on volume trends. The premise behind OBV is that volume precedes price action, meaning that a security’s price typically follows changes in the volume of shares traded. When OBV rises, it indicates increasing buying pressure, suggesting a potential price rise, while a declining OBV signals growing selling pressure, possibly leading to a price drop. A bullish divergence occurs when OBV forms higher lows despite lower price lows, indicating increasing buying pressure and often foreshadowing an uptrend. When combined with indicators like RSI, ADX, or moving averages, this divergence becomes a strong signal for an early entry ahead of a breakout.

The technical setup in INFY indicates a bullish outlook supported by key indicators. The stock formed a solid base between April and June of this year, followed by a rally that pushed its price higher, reaching a peak of Rs. 1975.75 in September. However, despite retesting this level in the previous week, INFY encountered strong resistance and failed to break through, leading to a price retracement. Nevertheless, a significant observation has emerged from the On-Balance Volume (OBV) indicator, which has formed a new high ahead of the actual price breakout.

This bullish divergence in OBV suggests strong accumulation, with increasing buying pressure, even as the stock consolidates below its resistance level. The formation of a new high in OBV ahead of price action is often a sign of heightened market participation and can serve as a leading indicator for a potential breakout. This divergence reinforces the likelihood of INFY retesting its previous highs and potentially surpassing them in the coming weeks, indicating a strong upward momentum.

In addition to the OBV signal, other technical indicators support a bullish view. The Relative Strength Index (RSI) remains neutral and shows no signs of divergence, indicating that the stock is neither overbought nor oversold. More importantly, the +DM line has crossed above the -DM line, signaling a shift in momentum toward the bulls. At the same time, the ADX line, which measures trend strength, stands at 21.05, indicating the presence of strength in the underlying trend, as it is above the critical 20 level.

Given this robust technical setup, INFY appears well-positioned for accumulation, particularly on any price declines. The combination of OBV bullish divergence, favorable directional movement, and a strong underlying trend suggests that the stock is likely to move higher over the medium term.

Should the anticipated breakout occur as expected, INFY may test Rs. 2000 to Rs. 2030 levels, offering a potential upside of approximately 6.50% from its current price. As such, the stock presents a compelling opportunity for portfolio inclusion with a medium-term investment horizon.

Foram Chheda, CMT,
Technical Research Analyst