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Technical View | Nifty forms bearish engulfing pattern, defends downward sloping resistance trendline

Experts look at this correction as a short term reversal after consistent run-up which is generally a good sign, as the index remains above all key short-to-long-term moving averages

April 17, 2023 / 05:07 PM IST


The Nifty50 on April 17 closed in the red for the first time in the last 10 consecutive sessions despite positive global cues, dented by a steep fall in technology stocks after lower-than-expected earnings by IT biggies Infosys and TCS.

The index opened at 17,863, which was also an intraday high, and immediately slipped into the red. It remained below the 17,700 level for a major part of the session before getting back above the same in late trade.

Finally, the index settled at 17,707, down 121 points and formed a bearish candle with a long lower shadow which also resembles a bearish engulfing kind of pattern formation at the new swing high of 17,863 on the daily charts, but it continued making higher highs for the tenth straight day and smartly defended long downward sloping resistance trendline.

Hence, experts looked at this correction as a short-term reversal after a consistent run-up which is generally a good sign, as the index remained above all key short-to-long-term moving averages. Hence, they expect the recovery after the current reversal to be strong and see the index surpassing the 18,000 mark soon.

"The present weakness in the Nifty is now nearing an important support of around 17,600-17,500 levels, which is the previous upside broken resistance of downsloping trendline as per change in polarity," Nagaraj Shetti, Technical Research Analyst at HDFC Securities said.

He feels the strong upside bounce of the last nine sessions and the formation of a new higher high at 17,863 levels on Monday are all pointing towards a sizable downward correction ahead for the Nifty before showing an upside bounce from the lower supports.

On Option front, the weekly maximum Call open interest was at 18,000 strike, followed by 17,700 and 17,800 strikes, with meaningful Call writing at 17,700 strike, then 17,800 strike. On the Put side, we have maximum open interest at 17,700 strike, followed by 17,600 strike, with writing at 17,700 strike and then 17,600 strike.

The above Option data clearly indicated that the Nifty50 may trade in the range of 17,500-17,850 levels in the near term.

The Bank Nifty outperformed the Nifty50 and stayed above the 42,000 mark for yet another session, rising 130 points to close at 42,263. The index has formed a bearish candle with the long lower shadow which somewhat resembles a Hanging Man sort of pattern formation on the daily scale.

This is generally a bearish reversal pattern formed at the top of the uptrend; but the index has still been making higher highs and higher lows on the daily scale from the past four trading sessions and relatively outperformed the broader markets.

Hence, "it has to hold above 42,000 levels, to make an up move towards 42,600, then 42,750 levels, whereas, on the downside, the support is expected at 41,750 levels, and then 41,600," said Chandan Taparia, Vice President, Analyst-Derivatives at Motilal Oswal Financial Services.

Volatility climbed above 13 during the session and provided discomfort to the bulls, but later cooled down from its highs. India VIX was up by 3.21 percent from 11.91 to 12.29 levels.

Broader markets have outperformed compared to benchmarks amid mixed breadth. The Nifty Midcap 100 and Smallcap 100 indices gained 0.4 percent and 0.3 percent respectively.

Disclaimer: The views and investment tips expressed by investment experts on are their own and not those of the website or its management. advises users to check with certified experts before taking any investment decisions.

Sunil Shankar Matkar
first published: Apr 17, 2023 05:06 pm