I've received a few requests to update current analysis on India's "Nifty 50? index, and indeed after a big recent rally, the index is at an interesting confluence target level traders should watch very closely in the days ahead.
Let's start with the weekly chart and drop-down to focus on the confluence:
Without getting into too much detail, the main idea is that India's stock market index – which you can use INDY as an ETF to trade – rallied at the end of 2010 just shy of the 6,360 level that was the peak in 2008.
That significant, but as you can see, the index peaked at the key breakout level on a long-term and short-term negative momentum divergence – a big bearish warning sign that preceded the recent decline into lower rising trendline support at 5,250.
The long-term (and intermediate term) trend remains up so unless the index drops back under 5,250 – preferably 5,000 – the long-term chart provides a bullish backgrop to the lower frame analysis.
With that being said, let's drop-down now to the current Daily Chart:
I think the big thing that jumps off the current chart is the falling trendline that is now interacting with price at the 5,900 level.
We'll discuss that – along with a key Fibonacci level – in the next chart.
For now, watch for any pullback here to find support at the confluence moving average level at 5,700 in the context of a potential breakout/bullish move.
Any move under 5,700 would be expected to find support at the 5,600 pivot level – and that's if we get there.
Momentum (3/10 Oscillator) just formed a new high for 2011 – really since September 2010 – which is confirmation of the bullish impulse and breakout from March 2011.
That suggests that higher prices are indeed yet to come after an initial retracement – likely down to 5,700 or as deep as 5,600 (but no deeper else something else other than a retracement is happening).
Now, let's take a look at the trendline and Fibonacci chart intersection I mentioned earlier:
If you're just focusing on one price level in the Nifty Index, let it be the dual confluence at the 5,900 area as seen above.
That's because the dominant short-term (daily chart) trendline comes in at that level which is important by itself, but we also have the 61.8% Fibonacci Retracement (up from the 2011 closing low) at 5,914 which is where the falling trendline recently rejected price last week.
So here's the main idea:
It's likely we'll see a slight pullback to 5,800 or even 5,700 (daily EMA level) before the index makes another try to break-through the falling trendline level and it may very well do that.
But, if the expected retracement we're seeing now is weaker than expected (meaning it doesn't fall much under 5,800 or instead price trades sideways), then look for a breakout to the upside above 5,900 then 6,000 to occur shortly.
If buyers break-through the 5,900 Index level, then it's likely a sign of a confirmed trend reversal to the upside from the daily chart, which suggests 6,200 then even new highs would be targeted on further bullish strength.
So, for now, watch 5,900 as the critical confluence pivot between buyers and sellers, and unless we move under 5,700, the bulls are likely to continue pushing prices higher despite the odds for a current pullback from the confluence resistance level at 5,900.