Technical View: Nifty forms Bearish Engulfing pattern; 9,928 crucial for bulls

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The Nifty50 which opened on a muted note extended losses in the second half of the trading sessions after it breached most of its short term moving averages on the lower side. The index formed a ‘Bearish Engulfing’ pattern as it wiped out gains made in previous sessions.

The index managed to recoup losses and closed above 9,900 levels. The index now trades below its crucial support level of 9950-9926 and if bears maintain their foothold on D-Street on Tuesday then further consolidation cannot be ruled out.

A bearish engulfing pattern is a two candlestick pattern in which one candle -- the first is white and the second black. The black body must totally engulf the body of the first white candlestick.

The Nifty50 opened at 9,984 and rose marginally to touch its intraday high of 9,988 but then bears took control and push the index by over 100 points to touch its intraday low of 9,861 – which made a long lower shadow. It finally closed 61 points lower at 9,912.

The long lower shadow with the recovery of 52 points from day’s low appears to be inline with a larger corrective pattern indicating a range bound move going forward preferably in the zone of 10,000 – 9700 levels, suggest experts.

“The Nifty50 registered almost a Bearish Engulfing kind of formation as Monday’s Candle body eclipsed previous trading sessions price range completely that too after retracing around 62 percent of entire fall from the highs of 10137 – 9685 levels suggesting either limited upsides or end of pullback attempt,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“If Monday’s high of 9,988 is going to be the top then traders should prepare themselves for a retest of 9,685 levels over a period of time whereas upsides if any beyond 9988 shall continue to be limited and traders should make use of them only to lighten up their long positions,” he said.

On the options front, maximum Put OI was seen at strike prices 9,700 followed by 9,800 while maximum Call OI was seen at strike prices 10,000 followed by 10,100.

Fresh Put writing was seen at strike prices 9,700 while Call writing is taking place at all the strikes from 9800 to 10500. India VIX moved up sharply by 12.71% at 13.16 and a sudden jump in VIX after the declines of last three weeks has given a concern to bulls to hold on their long position.

“Option Data suggests limited upside as well down till it doesn’t give a decisive breakout above 9980 or below 9775 zones. Technically, Nifty formed a Bearish Engulfing pattern as it covered all the gains made in last three trading sessions,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.

“The index has to now cross and hold above 9,928 zones to witness an up move towards 9980 then 10020 while on the downside supports are seen at 9850 and then towards 9820 levels,” he said.

Taparia further added that India VIX has to hold below 12.50 to get a smooth ride in next coming sessions otherwise high wave trade could continue in the market.