market analysis: Tech View: Nifty50 forms Bearish Engulfing candle, shows weakness

NEW DELHI: Nifty50 snapped a 10-day winning streak on Thursday and formed a large bearish candle on the daily chart that engulfed the past few candles, thus forming a Bearish Engulfing pattern. Such a pattern after a rally has negative implications.

Analysts said the index did not respect its immediate support at the 11,800 level and felt that the 11,600-500 levels are a possibility in coming days. A move above the 11,750 level is a must for initial sign of strength on Nifty50, they said.

Aditya Agarwala, Senior Technical Analyst at YES Securities, said the ‘Bearish Engulfing’ pattern at the top was something very similar to what Nifty50 witnessed on August 31 at the 11,800 level. August’s candle was followed by a significant decline in the index towards the 10,800 level, he said.

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“On the weekly time frame, the index has formed a Dark Cloud Cover pattern, which signifies the weakening uptrend. A sustained trade below the 11,700 level will extend the correction to 11,600-11,550 levels. Technical indicator RSI has turned back from the overbought territory on the daily chart, suggesting a temporary pause. A move above the 11,750 level can trigger short covering and drag Nifty towards the 11,800-11,840 zone,” Agarwala said.

Mazhar Mohammad of said if Nifty comes to a level below 11,661, it can head towards the 11,495-400 zone. “Consolidation is likely if Nifty50 holds above it. Any rally towards the 11,800-850 range will remain vulnerable to selloff,” he said.

For the day, Nifty closed at 11,680, down 290 points or 2.43 per cent.

Independent analyst Manish Shah said Nifty50 had a closing high of 11,675 in August. Its secondary top for the month stood at 11,650 level, which can offer support going forward.

“MACD remains in the buy mode, but it is a lagging indicator. The RSI indicator has dipped below the 60 mark, suggesting loss of momentum. On the lower time frame intraday charts, the index has broken below a Double Top pattern. In case of any recovery, the index will face resistance in the 11,820-11,850 zone,” he said.

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