Nifty: Tech View: Nifty50 forms a Bearish Engulfing pattern; avoid longs for now

NEW DELHI: Nifty50 on Wednesday formed a Bearish Engulfing pattern on the daily chart. This reflected that the bears now have an upper hand in the market filled with uncertainties.

The index opened in the green but soon lost momentum under pressure due to a rising dollar and spike in energy prices. Nifty50 registered a perfect reversal formation with a lower top at the intraday high of 17,885 level. It closed 176.30 points or 0.99 per cent down at 17,646.

“The possibility of Nifty retesting the recent lows remains high provided it consistently trades below the 17,600 level in the next one or two sessions. We advise traders to avoid buying dips in haste, while positional traders with high risk appetite can go short in the 17,700-750 zone by placing a stop loss above 17,885 and look for a target of 17,500,” said Mazhar Mohammad, Founder & Chief Market Strategist, Chartviewindia.in.

The bears initiated a fresh round of selling at day’s high, resulting in a sharp decline in the second half of the session. Consequently, Nifty formed a bearish outside bar along with an Engulfing Bear candle on the daily chart.

“A short-term consolidation is expected to continue further. Structurally, the index can take the form of a triangular pattern, which would also mean consolidation in the next few sessions. On the downside, the index is expected to test the support zone at 17,500-17,450. On the other hand, the 17,700-17,750 zone will act as an immediate resistance zone,” said Gaurav Ratnaparkhi, Head of Technical Research, Sharekhan by BNP Paribas.

However, despite the short-term hiccups, the medium-term trend remains positive, said analysts.

Sahaj Agrawal, Head of Research- Derivatives at Kotak Securities, said Nifty50 continues to remain in a medium-term uptrend and he expects it to conquer the 18,500 level going ahead.

“Buying on dips is advisable. Metals are showing early signs of reversal, while the NBFC space is expected to remain in action. Midcaps also remain in momentum with outperformance expected to continue,” he said.

India VIX, a barometer of volatility and fear in the market, which had been on a decline for a few days, shot up nearly 6 per cent to 17.33. This suggests cautiousness has seeped in among the traders.

“Nifty50 has decisively breached the majority support zone. Going ahead, the immediate support zone is coming near the 17,600-17,500 zone. If it holds up, one can expect a swift pullback. However there is a good resistance near the 17,700-17,770 zone, where we may see some profit taking,” said Rohit Singre, Senior Technical Analyst at LKP Securities.