Headquartered in Bangalore, India, Infosys Limited offers business solutions in the fields of digital services and consulting. Like almost everything tech-related, the company enjoyed a pandemic surge in demand, which led to a sharp rise in its valuation, as well. Between its March 2020 bottom and January 2022, the stock almost quadrupled from under $7 to over $26.
Alas, everything that has a beginning also has an end. At one point in September, 2022, Infosys stock was down by $10 a share from its record for a 37.9% drop. With the price currently at $18.40 and inflation showing signs of abating, investors are wondering whether this is a buying opportunity. Judging by the Elliott Wave chart below, it might be, but only in the short term.
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The daily chart above reveals that the drop from $26.39 to $16.39 took the shape of a five-wave impulse. We’ve labeled the pattern 1-2-3-4-5, where the five sub-waves of wave 3 are also visible. Wave 2 is an expanding flat correction, while wave 4 is a w-x-y double zigzag. According to the theory, a three-wave correction follows every impulse. That is exactly what we believe has been in progress since late-September.
Infosys Stock Can Soon Resume Its Fall
The recovery to $20.57 on December 1st must be wave A of a simple A-B-C zigzag, whose wave C is still missing. It can lift the stock price to the resistance near $22 a share, only to create the illusion of a new uptrend. Once wave C is over, however, the entire 5-3 wave cycle, marked (A)-(B), would be complete. The price can then be expected to head south again in wave (C) for a drop of at least 30% to under $15.
In addition, keep in mind that Infosys is not fundamentally cheap, either. Analysts’ earnings estimates for both 2023 and 2024 put the stock at a forward P/E above 22. We think there are much better deals out there right now and we’ve added 18 of them to The EWM Interactive Stock Portfolio.
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