Why Is Cognizant Technologies Going Up?

04/08/10 08:40:11 AM

by Koos van der Merwe

From $1.50 to $50-plus in 11 years, and still going strong. Why?

Security: CTSH
Position: Sell

Cognizant Technologies (CTSH) is a provider of information technology, consulting, and business-process outsourcing services. In 15 years, the company PR says, it's reached US$3 billion in revenue.

So what do they do that makes their share price move like that? Give free business advice? Doesn't matter. Whatever they do, the share price does look interesting.

FIGURE 1: CTSH, MONTHLY

Graphic provided by: AdvancedGET.

Figure 1, a monthly chart, shows how the price has risen from a low of $0.54 in August 1998 to a high of $48 in February 2007. The technology bubble of 2000 did affect the share price, dropping the price in a wave 2 correction from $6.35 to $1.71. From then on, the stock price zoomed to a high of $48 by February 2007, with a relative strength index (RSI) at overbought levels. After that, it dropped with the market to a low of $14.22 by November 2008 — nasty, but a perfect wave 4 correction as shown. From that date, the price rose back to highs of $51.43 with a target of $60.61 as a wave 5 high. The RSI is in overbought levels once again, and volume has been falling as the price has risen, suggesting weakness ahead.

FIGURE 2: CTSH, DAILY

Graphic provided by: AdvancedGET.

Figure 2, a daily chart, confirms the monthly chart, and suggests that at $52.90 the share price completed wave 5 with a correction now on the cards into the fourth wave of lesser degree, the area shown on the chart between $42.13 and $49. The price could look for support on the rising trendline. The volume and RSI both confirm this weakness.

The movement of the stock suggests that it is one to be purchased once the ABC correction is completed. What is interesting is that it does appear to anticipate market movement. This is a share worth watching.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.