Nifty 50 On The Path To A New High: Technicals Point To More Gains

India’s benchmark stock index is closing in on February’s all-time high. A clean technical breakout suggests the Nifty 50 may head even higher still.

Indian stocks have been surprisingly resistant to the devastating second virus wave sweeping the country. Despite the rising cases the Nifty 50 has marched higher for the last month.

This rally culminated in the price finally breaking above a descending trend line from the February highs. The price has yet to set a new record, but this may be just a matter of time if the current trajectory continues.

The recent downtick in new COVID infections should provide further tailwinds for the index. The rate of new infections has been steadily declining over the last month and may lead to lockdown restrictions being relaxed.

New Delhi Chief Minister Arvind Kerjriwal told reporters:

“If cases continue to drop for a week, then from May 31, we will start the process of unlocking,” Kejriwal told a news conference.”

Investors are now looking past the current situation and pricing in the re-opening. If the virus situation continues to improve, February’s peak may well lose the ATH title.

Nifty 50 Technical Outlook

The index has been in a descending wedge pattern since the ATH in February. The recent break out on the upside potentially targets 16,3000. Basis today’s 13,305, this would represent a gain of +6%.

Technical analysis suggests when a price breaks out of a wedge pattern, the resulting move is likely to be equal or greater than the widest part of the formation.

There is no guarantee that this target is achieved. However, if the pandemic situation in the country continues to improve, there is also no guarantee that it cant be reached.

I hold a bullish bias for the Nifty 50 and believe the price will continue to do well as long as the health crisis eases. However, should the price return back into the wedge, it would negate this view.

Therefore buyers should place a stop below 15,100.

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