India’s “Nifty 50″ stock market index is coming into potential key overhead resistance on the weekly chart after an impressive rally to levels not seen since October 2008.  Let’s see the structure and note prior bear market rallies.

Nifty Weekly Chart:

First, let’s note the technical structure.  Price has broken above a down-trend line (not drawn) that began from the 2007 highs.

Second, price has formed a new swing high, taking out the prior swing high made in January 2009, which is quite bullish.

Third, price has risen above the 20 week EMA but is finding resistance currently at the falling 50 week EMA.  Look closely to see the bearish candle that has formed at this level – it’s a ’shooting star’ candle (notice the upper shadow or wick).  That’s bearish.

The trend may be changing back to up, but we’ve only completed the first step in a trend reversal process – the higher swing high.  It will take a higher low and then price swinging up to take out the 3,500 level to confirm a new uptrend.

Finally, let’s look at the prior two significant bear market rallies in the Nifty Index (highlighted in yellow).

The rally from March to May 2008 lasted 6 weeks (6 bars) as price increased 17%.

The rally from July to August 2008 also lasted 6 weeks (bars) as price increased 18%.

From the March lows to present, we have seen six-straight weeks of higher prices which have taken the index up almost 40%.

So, in the same time (6 weeks) of prior bear market rallies, we’ve increased twice what those rallies gave us in prices.  This could be a sign of impulse or new life in a new bull, but using classic technical methods, we have to classify this as a strong bear market rally until proven otherwise.

Let’s watch this week closely to see if the 3,500 level holds as resisatance, and if so, we would expect a minimum move down to 3,000 if not lower.

Corey Rosenbloom
Afraid to Trade.com

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