Technical View: Nifty forms a Bearish Engulfing Pattern; 9950 crucial for bulls

Market

Bulls failed to keep the momentum going as Nifty50 came under pressure as soon as it came close to its crucial resistance level of 10,080 and made a ‘Bearish Engulfing Pattern’ on the daily candlestick charts on Wednesday.

The index wiped out gains made in the previous session but managed to close above its crucial short-term moving averages such as 5-days exponential moving average (DEMA), 50-DEMA, 10-DEMA, 13 and 50-DEMA.

Nifty index failed to continue its formation of higher lows and corrected by around 100 points from its intraday high levels towards 9950. The bears might try and regains their foothold on D-Street if Nifty closes below 9950 levels.

A Bearish Engulfing Pattern consists of two candles. One candle is usually a small candle which is followed by a large black or red candlestick pattern that engulfs the short one or the previous candle.

A bearish candlestick pattern suggests that bears were able to regain control after the index moved in a narrow range for the past few sessions. It is usually seen as the end of an uptrend but if index breaks below its crucial support level of 9950, selling pressure could accelerate.

The Nifty50 opened at 10,042.60 and made a high of 10,067.25 which resulted in small upper shadow. It pared gains and corrected below 9900 to record its intraday low of 9984.80 which resulted in small lower shadow.

“The Nifty50 registered a Bearish Engulfing Formation in line with our projections as it reversed the course from the right technical resistance point placed around 10,080 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in.

“In next trading session if the indices trade below 9955 levels for atleast one hour then selling pressure shall build up thereby marking the end of pullback attempt from the lows of 9687 and traders should prepare to see deep cuts towards the levels of 9863 to 9760 going forward,” he said.

Mohammad further added that traders are advised to shift focus on stock specific activity and can consider short positions in the index, below 9955 levels, with a stop of 10090 for the targets placed around 9850.

India VIX moved up by 5.58 percent at 11.73. The market witnessed a sudden spike in volatility as index broke above its higher lows after the seven trading sessions.

On the options front, maximum Put OI was seen at strike prices 9,800 followed by 9900 and 10000 while maximum Call OI is intact at 10000 followed by 10100 strikes.

“We have seen Put activities from 10,000 to 10,100 strike while Call writing is intact at 10000 and 10,100. Technically, it formed a Bearish Engulfing pattern on the daily chart and closed below 10,000 zones,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“Now, immediate support is at 9,950 and below that only weakness could continue towards 9,880 while on the upside hurdles are seen at 10,050 and 10,080 levels,” he said.