CTSH gapped down from a close of 83 to 78 in the premarket.

Intraday Fundamentals (From Barron”s)

Shares of IT outsourcing firm Cognizant Technology Solutions (CTSH) are off $6.11, or 7.4%, at $76.10 after the company this morning despite beating Q1 estimates and forecasting the current quarter and the year above estimates.

The drop is likely part of the broad-based weakness in IT Offshore names followingIndia’s central bank’s announcement this morning it is raising its key lending rate a half a point. Infosys (INFY) shares, for example, are down $1.85, or 3%, at $63.57.

Longer Term Technicals

Below 77.75 the next technical level was 76ish.

The Tape

There was risk right on the open as CTSH looked illiquid.  78 was holding the offer but if this offer lifted it was difficult to gauge our exit.  78 held and CTSH traded lower.  77.80 repeated on the offer.  Was this the selling and then selling lower pattern that foreshadows an opening drive?

No.  77.75 held the bid impressively and then 77.80 lifted.  We found 78 again on the offer.  Was this an opening range set up where 77.75 was buying and 78 was selling?  Was 77.75 the bottom on the open and CTSH ready to reverse?  If CTSH was ready to bounce I would expect a flush through 78.

That didn’t happen as 78 again was not violated.  CTSH found the 77.75 intrday on-the-open level again.  75c dropped.

The play is now to short and play for the opening drive, a bigger momentum downmove.  There was a clean two points in this pattern today.  Perhaps you can learn to make this set up your own.

Mike Bellafiore

Author, One Good Trade