Tech View: Bearish Engulfing Candle on Nifty charts; but analysts say market bias positive

NEW DELHI: Nifty50 snapped a four-day winning streak on Wednesday and closed in the red. In the process, it formed a

Bearish Engulfing Candle

on the daily chart. Yet, analysts said the market bias remains positive, as long as

Nifty

does not break below the 10,625 level.

“Nifty formed a Bearish Engulfing candlestick pattern following a series of Doji formations, indicating that the bears are getting active in trade,” said Aditya Agarwala, Senior Manager, Technical Analysis at YES Securities

“A sustained trade below 11,625 level will extend the correction to 11,590 and 11,535 levels. However, a trade above 11,690 can trigger a short-covering rally, which may lift the index back to 11,760 level,” Agarwala said.

For the day, the index fell 69.25 points, or 0.59 per cent, to 11,643.

The market seemed to have given some reality check to trader, who were gung ho after the index surpassed previous highs, said Sameet Chavan of Angel Broking.

“We do not mean that it’s a change of trend. The bias still remains bullish, but one needs to understand that since we are at such elevated levels, one should not become complacent and enter at any level. After Wednesday’s decline, Nifty has precisely filled the gap created on April 1 and also retested its five-day EMA,” Chavan said.

If Nifty continues its weakness for next one or two sessions, one may consider the whole setup as a bearish double-top formation at 11,760 level, said Nagaraj Shetti of HDFC Securities.

Arun Kumar of Reliance Securities said some of the momentum-based oscillators have triggered a ‘sell’ signal and felt the index may find some support at 11,570.

Gaurav Ratnaparkhi of Sharekhan said the price action over the past three sessions showed a pattern called Pop Gun. It consists of an Inside Bar followed by an Outside Bar.

“In this particular case, the pattern has been formed near a crucial hurdle and is being accompanied by negative divergence in the short-term momentum indicator. Thus, there is a higher probability for this turning out to be a reversal pattern. This means the pattern will have bearish implications.”

Source

Author: Prakash Poojary

Business Analyst

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