Kshitij Anand Moneycontrol News
The Nifty50 which opened with a gap on the upside taking out 9,900 in the first tick on Thursday failed to keep the momentum going as bears reclaimed their territory. The index formed a ‘Dark Cloud Cover’ kind of pattern on the daily charts.
A Dark Cloud Cover is a two candlestick pattern and is formed when a red candle follows a white candle. It can be an early indication of a bearish trend. The essential requirement of the pattern is that the price should move within the price range of previous trading session.
The price action should be below the mid-point of the previous day’s range. A midpoint is calculated by averaging the highest and the lowest point of the previous trading day.
The Nifty50 recorded an average of 9,878 from an intraday low of 9,905 and an intraday high of 9,851 in the previous trading session. The index closed 26 points lower, down 0.2 percent at 9,873 which is lower than the midpoint range of previous trading session of 9,878.
On a daily basis, the index formed a bearish candle which resembles that of a ‘Bearish Belt Hold’ kind of pattern with insignificant upper shadow and small lower shadow.
Traders are advised to pare down their long positions and add fresh positions once index closes above 9900-9920 levels. Key support for the index is placed at 9850-9820, suggest experts.
“The Nifty50 registered a Dark Cloud Cover kind of formation as it closed below the midpoint of previous trading sessions candle body suggesting that the bounce from the recent low of 9792 is over and it may resume the downtrend,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.
“Besides, at Thursday’s high of 9,922 levels, it also appears to have made a possible double top kind of formation. In an ideal scenario, after this kind of bearish patterns downtrend shall get resumed and it should threaten the recent low of 9792 levels and extend the correction,” he said.
Mohammad reiterates his stance that for time being buying dips should be avoided and wait for markets to stabilise at a particular level before initiating any fresh longs. Our bearish stance will get negated if Nifty50 closes above 9,928 levels.
The index has been struggling to hold above 9,900 zones from the last six trading sessions while buying interest emerges only on declines as bulls are not ready to lose their grip. However, follow up is missing at a higher zone which signals consolidation.
On the options front, maximum Put OI was seen at 9,800 followed by 9,700 strikes while maximum Call OI is seen at strike prices 10,000 followed by 9,900.
Fresh Call writing was seen at all the strikes from 9900 to 10100 while marginal Put unwinding was seen at strike prices 10,000, 9900 and 9850.
“Put Call Ratio again fell down because of Call writing at higher strikes which indicate that upside is getting restricted for this series but maximum Put OI at 9800 strikes could provide the support on declines. Option band signifies the trading band of 9800 to 10000 zones for next few sessions,” Chandan Taparia, Derivatives and Technical Analyst at Motilal Oswal Securities told Moneycontrol.
“The index has to cross and hold above 9,900 zones to witness an up move towards 9,928 and then towards 10,000 marks while on the downside supports are seen at 9850 and then towards 9,820 levels,” he said.
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