The Nifty50 fell for the first time in the last nine consecutive sessions and closed with over a percent loss on August 19. On the daily charts, the index has formed a Bearish Engulfing Candlestick pattern.
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. On Friday, one big red candle has eaten all three previous green candles in a single day.
Hence, if the index holds its Friday's low point of 17,710 in the coming session, then there is nothing to worry but if it breaks, then it can correct up to 17,500 levels, experts said.
The Nifty50 started off higher at 17,967 and climbed up to 17,992, but in the morning itself it lost the steam and corrected up to 17,710.75. Finally, it settled at 17,758, down 198 points.
For the week, the index gained 0.34 percent and formed a Doji kind of pattern on the weekly scale.
Also read - Market snaps eight-day winning streak, erases weekly gains; Nifty below 17,800
"Nifty50 appears to be on the verge of reversing its course of direction as the long bearish candle almost reversed the gains of the last three trading sessions. Moreover, weekly charts registered an indecisive formation with a narrow trading range of 282 points which is certainly looking like a cause for concern," Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia said.
At this point in time, the only solace for bulls is the fact that some buying emerged as the index entered into the bullish gap area present between 17,764 and 17,724 levels, registered on August 16, which was defended at least on a closing basis.
Therefore, if the bulls fail to defend 17,710 levels in the ensuing week then more weakness should be witnessed with an initial target of around 17,350 levels, the market experts said, adding upsides shall remain capped at 17,992 levels.
For the time, the trade seems to be on the short side, he advised.
Also read - Gainers & Losers: 10 stocks that moved the most on August 19
On the Option front, we have seen maximum Call open interest at 18,000 strike, which is expected to be a crucial resistance point for the index, followed by 17,900 strike, with Call writing at 18,000 strike then 17,900 & 18,600 strikes. The maximum Put open interest was seen at 17,000 strike, which could remain as crucial support for the market, followed by 17,500 strike, with Put writing at 17,300 strike then 17,200 strike.
The above Option data indicated that the broad trading range for the Nifty50 could be around 17,000-18,000 levels in coming sessions.
Bank Nifty also opened higher at 39,733, but immediately lost the game and remained under pressure throughout the session to hit a day's low of 38,848. The index closed with 1.7 percent or 670 points loss at 38,986 and formed a large Bearish Engulfing candlestick pattern on the daily charts, but continued with higher highs formation for the eighth consecutive session.
“The trend is likely to remain sideways to negative in the near term. A fall below 38,800 may trigger a serious correction in the banking space. The support on the lower end is visible at 38,800-38,300. On the higher end, resistance is visible at 39,500," Rupak De, Senior Technical Analyst at LKP Securities said.
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