TCS: Reversion To Mean

September 24, 2012 . FundsIndia Desk

Anyone who has been initiated into Technical Analysis must have read about Fibonacci retracement / projections. This post is meant to kindle the thought process of readers, in terms of how retracement need not necessarily be horizontal. They may be sloped. I’ve also mentioned in numerous posts that price tends to oscillate around a mean and the best trades occur at the extremes from the mean.

Have a look at the weekly chart of Tata Consultancy Services (TCS) featured below. Notice how the price has been in sync with the red set of lines.

Price appears to reversed from an extreme, which is represented by the upper red line. It is reasonable to expect a reversion to the mean which in this case is the middle red line. Take note of the gray up sloping line which could also come into play and may turn out to be another measure of mean or fair value.

My expectation is that the price is likely to cool off to Rs.980 – 1,050 range. This view would be invalidated if the price moves past the recent high of Rs.1,440.

Trade Safe and Don’t Get Hurt


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