As the markets have recovered a bit from yesterday’s selling, the index is the top-performing sectoral index for the day so far, gaining 1.71% to 30,480, by 10:24 AM IST. It might be prudent to go with the sectoral strength of the IT pack on the long side, and one counter that fits the criterion for a long candidate is Infosys (NS:) Limited.

It is an IT giant with a market capitalization of INR 5,64,609 crore, making it the second-largest IT company on the NSE, after TCS Limited (NS:). The stock had posted disappointed Q1 FY24 earnings and the management also gave a not-so-good guidance which led the counter to nosedive 8.13% on 21 July 2023.

Image Description: Daily chart of Infosys with volume bars at the bottom

Image Source: Investing.com

A wave of investors went to liquidate their positions in the pre-market window which led the stock to open with a huge gap-down. But interestingly, the low of that day, which is INR 1,305 still remains the lowest level after this event which indicates investors are finding such lower levels as a good value area to add such blue chip counters to their portfolios.

The stock has already started to recover and in its attempt to pare some of the losses, it might travel all the way up to fill the gap which is still open. This is a very common phenomenon in technical analysis and based on this principle, the stock is a good candidate for an additional 4.5% rally to INR 1,440 which is where the gap will finally be closed.

However, one thing that needs to be noted is the exit levels are a bit deep, at INR 1,305. Therefore, long futures positions might become too risky for many traders and hence, hedging should be there for traders dabbling in the derivatives segment. Options strategies such as a bull call spread or a bear put spread (for traders who love credit strategies) can become good options.

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