India’s Nifty Still Looking Strong Even After Six-Month Advance

  • RSI, MACD, Fibonacci technical indicators show room for gains
  • Pending raises for state workers fuels stock-market optimism

India’s benchmark Nifty Index still has room for more gains after rallying toward its best six-month run in two years, technical indicators show.

Even after Wednesday’s 16-month closing high, fueled by plans for state-worker pay raises, its relative strength index is comfortably below the overbought mark, and its moving average convergence-divergence line just sent a bullish signal. The equity benchmark also has broken through a key technical resistance level.

“The Indian stocks rally has been broad-based and the uptrend looks healthy with sectors like financials seeing strength relative to broader indices, a positive sign for overall markets,” Ayush Nagaraj, a chartered market technician and sales trader at Sanford C. Bernstein, said in a phone interview from Hong Kong.

The Nifty’s RSI stands at 65, well short of that velocity measure’s oversold demarcation of 70. This indicator issues a sell signal only after it breaches 70 and then falls below that line again, so the rally may have some momentum left.

While the RSI makes the technical case against a bearish move, the MACD momentum indicator just sent a buy signal.

This analysis can presage a change in direction. The Nifty fell 1.6 percent in three weeks this month, just after a bearish signal: The MACD, or short-term moving average line, crossed below the so-called signal line, a moving average of the MACD. This week’s Nifty advance did just the opposite, with the MACD crossing above the signal line on Wednesday in a display of upward momentum.

The benchmark this week also made a clean break above the key Fibonacci resistance level that represents a 76.4 percent recovery from February’s low to its March 2015 high after being range-bound between just above and below the barrier since mid July. The next key Fibonancci resistance level, a 100 percent recovery, is 3.8 percent above Wednesday’s close of 8,786.20.

“The next big resistance levels are the highs of January and March 2015, levels just shy of the psychologically important mark of 9,000 on the Nifty,” Nagaraj said.

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