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Last Updated : May 21, 2019 04:26 PM IST | Source:

Technical View: Profit booking hits D-Street; Nifty forms ‘Dark Cloud Cover’

Investors are advised to avoid leverage and use Call options of strike 12,000. The index is likely to face resistance around 11,800-12,000

Kshitij Anand @kshanand

On expected lines, Nifty consolidated after hitting the record high of 11,883 on May 21 and made a large bearish candle or a Dark Cloud Cover pattern on the daily candlestick charts.

A Dark Cloud Cover pattern is a two candle pattern which is formed where the second candle opens above the close of the bullish candle formed in the previous session and then closes below the midpoint of the previous candle.

The pattern holds importance because it shows that there could be a shift in momentum from upside to downside. However, that still requires confirmation and a close below 11,600 could be an indication of fading momentum.


Nifty opened at 11,863 and rose to a record high of 11,883.55. But, traders preferred to book profits at higher levels and pushed the index towards 11,682, which was the intraday low. The index closed 119 points lower at 11,709.

As India VIX has moved slightly higher, investors are advised to avoid leverage and use Call options of strike 12,000. The index is likely to face resistance around 11,800-12,000.

India VIX moved up 8.33 percent at 25.65 and recovered from previous day’s close of 23.65. Volatility could continue for the next two sessions as after the exit poll, now everyone is keenly waiting for the actual results on May 23.

“Nifty registered a Dark Cloud Cover formation as it failed to sustain above the lifetime highs of 11,856 after opening with a gap-up and closed below the mid-point of the candle body witnessed on May 20,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

“However, this kind of price behaviour appears to be normal and can be attributed to profit booking after a huge single-day gain of around 4 percent. Hence, in the next trading session, the market may continue to remain rangebound before the actual poll outcome,” he said.

Mohammad further added that in case if Nifty slips below 11,682 then it can extend its downswing further towards 11,600, and for time being if traders want to bet on the poll outcome then they can prefer taking exposure to 12,000 call option by making use of current weakness and the same should be squared off on the result day itself.

Nifty options: Maximum Put OI was placed at 11,000 followed by 10,500 while maximum Call OI was placed at 12,000 followed by 12,500.

Marginal Call and Put writing activities were seen in the market and option band signifies a wider trading range of 11,500-12,000.

The price setup with higher volatility suggests that bulls will be in a tug of war with bears to decisively surpass new high territory in the market, suggest experts.

“Nifty made a new lifetime high of 11,883 in the opening tick but failed to hold its gain and drifted sharply towards 11,680. It formed a Dark Cloud Cover pattern on the daily scale as it moved higher but closed near to the middle part of the previous session,” Chandan Taparia, derivative & technical analyst at Motilal Oswal Securities told Moneycontrol.

“Pattern setup suggests that bears are not allowing the index to hold at higher levels and supply pressure is seen at a new lifetime high territory. The index has to continue to hold above 11,666 to extend its move towards 11,888 while major support exists at 11,550,” he said.

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First Published on May 21, 2019 04:26 pm
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