Narendra Modi's landslide victory in India's elections spurred hopes that Asia's third-largest economy would soon see growth-supportive policies. Stocks rose sharply in the run-up to the elections and while post-election sentiment may see stocks rise further charts indicate that a quick retracement is possible.
In March 2014 the NIFTY 50 broke decisively above 6350, which had been a major resistance level since January 2008. It was previously tested in November 2010, and more recently acted as a strong resistance level from November 2013 to January 2014.
The NIFTY had formed a very wide trading band with support located near 4650. Support was tested in December 2009, February 2010 and again in December 2011. The width of the trading band is measured and this measurement is projected upwards to give a breakout target near 8000.
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The key concern is the nature of the breakout. The NIFTY has developed a parabolic trend. These trends are found most frequently in bull markets, or markets showing volatile rebounds. While parabolic trends are usually seen in fast-moving stocks, they are also present in fast-moving index areas or markets.
Parabolic trends are best described using an arc, or a segment of an ellipse. They start slowly then accelerate very rapidly until activity on the price chart is almost vertical. They cannot be adequately described by straight edge trend lines; instead the price action uses a parabolic curve as a support level.