J.C. Parets : India Nifty 50 in a Healthy Consolidation

Its nice to see some leading market technicians comment about our very own Nifty! Here is JC Parets commenting in his latest post.

The Nifty 50 is the leading index for large companies on the National Stock Exchange of India. We want to look at this index as a leading “risk-on” indicator. When money wants to be aggressive and feels confident that buying equities is the right thing to do, you’ll probably see money flowing in this direction. The opposite is also true. Look at the destruction of the Nifty 50 in 2008 when money was trying to be a conservative as possible:

After making all-time highs in early 2008, this benchmark of India got clobbered. But look how quickly it recovered throughout 2009. Look how the Nifty 50 put in its lows well before the US indexes made their lows. This is easily one of my favorite leading indicators.

Late last year, India managed to come all the way back to test those 2008 highs. The market has memory here guys, we cannot possibly expect this index to break through there without at least a little consolidation. I know a lot of us are impatient, it’s just human nature, but come on, give this index a break. The descending-triangle like formation that we have seen here over the last 10 months is perfectly normal. Here is a closer look:

We have a declining trendline up top with a flat fixed level of support down below (5200 or so). On a breakout above this descending trendline, I would expect a retest of those all-time highs. Again, be patient – don’t think it’s just going to break through and never look back. Expect it to chill out a bit before making it’s next major move higher.

The bottom line is that the Nifty 50 still looks good. Buying on weakness is probably the right thing to do. Any action below these key support levels would force me to reevaluate our position. But as of right now, this action seems normal and constructive.