Technical View: Nifty forms ‘Dark Cloud Cover’; 11,738 level crucial

Nifty50, which started trade with a gap up failed to hold onto the momentum and eventually gave up gains to close in negative making a ‘Bearish Belt Hold’ kind of pattern or Dark Cloud Cover on the daily charts ahead of the long weekend.

A Dark Cloud Cover is a bearish reversal pattern consisting of two candles. The red candlestick, which is, April 18’s candle opened above April 16’s green candle but profit taking pushed the index below the midpoint of Tuesday’s candle. The confirmation will come if Nifty forms another bearish candle on April 22.

Nifty hit a fresh record high of 11,856.15 in early trade and after that bears maintained their hold and push the index in the red. The index hit an intraday low of 11,738.50 before closing the day at 11,752, down 34 points.

India VIX moved up by 4.48 percent at 22.66 levels. A sudden spike in VIX indicates limited upside with a volatile swing in the market.

For bulls to remain in control they have to push the Nifty back above 11,856 levels which would take the index towards 12,000 while a bearish candle on April 22 could fuel further profit taking, suggest experts.

“Bulls disappointed as Nifty50 registered a Dark Cloud Cover formation post last Tuesday’s breakout above its lifetime highs. Hence, in next trading session further weakness can be expected if Nifty trades below 11,738 levels and a close below 11,700 levels shall result in failure of a recent breakout,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

“In such a scenario, traders should adopt a neutral stance on long side bets. In case Thursday’s profit booking is owing to a long weekend factor, as traders generally won’t prefer to carry their profitable long positions in uncertain times, then the market shall remain sideways and find support in the zone of 11,738–11,700 levels which may then eventually lead to the breach of 11,856 levels with targets placed around 12,000,” he said.

On the options front, maximum Put OI is placed at 11,500 followed by 11,000 strikes while maximum Call OI is placed at 12,000 followed by 11,800 strikes.

Put writing is seen at 11,400 followed by 11,650 strikes while Call writing is seen at 11,800 followed by 12,000 strikes. Options band signifies a shift in a higher trading range in between 11,600 to 11,900 zones.

“The Nifty index opened positive but failed to hold its gains above 11,800 zones and drifted gradually towards 11,740 zones. It formed a Bearish Belt Hold or Dark Cloud Cover pattern on the daily scale while small Bullish Candle on a weekly scale,” Chandan Taparia, AVP and Analyst-Derivatives at Motilal Oswal Financial Services told Moneycontrol.

“However, it has been making higher highs - higher lows from last four trading sessions on the daily scale and till it hold above 11720 zones it could extend its momentum towards 11888 zones while on the downside support is seen at 11666 then 11550 levels,” he said.