India’s Nifty 50 index has found a ceiling at 15,900 and, for the last month, has failed to advance past this point. So does this mark the top of the rally?
The benchmark Nifty 50 (NSEI), which represents the cream of the crop of Indian companies, has been unstoppable for over a year.
The covid pandemic took a terrible toll on the world, nowhere more so than in India. But despite the recent health crisis, the stock index has shown incredible resilience. Not only has the NSEI more than doubled from the last year’s 75,11 low, but it has also surpassed January 2020’s all-time high of 12,430 by 25%.
However, the progress has slowed in the last four weeks, and the price has entered a period of consolidation. However, the index is retreating to a significant support level. This may turn out to be a pause before the next leg higher, or it may signal the top is in. Therefore, how the Nifty performs in the coming days may set the tone for the foreseeable future.
The daily chart shows a clear uptrend with a narrowing range. Both the supportive and the restrictive lines have perfectly dictated the range.
Below the market, the rising trend line from the March 2020 low is now visible at 15,550. This is a critical area of support. Just below the trend sits the 50-day moving average at 15,415. Followed by the longer term, 100 DMA at 15,104. And for the Nifty 50 to continue its upward path, it must remain above these important support levels. A failure to do so could prove fatal in the short term.
In this event, the NSEI targets April’s 14150 low, which aligns with the safety net of the 200 DMA at 14,085.
However, if the Nifty 50 can progress beyond 15,900, the logical target is the top of the rising wedge at 16,500.
In my opinion, given the impressive price performance, both scenarios are possible.
Follow Elliott on Twitter.
