Technical View: Nifty forms #39;Dark Cloud Cover#39; pattern; avoid short terms bets

July 02
17:29 2018

The Nifty50 which started with a gap-up failed to hold on to gains and closed the session lower on Monday, forming a bearish candle on the daily charts which also resembles a ‘Dark Cloud Cover’ kind of pattern on the daily charts.

A Dark Cloud Cover pattern is a bearish pattern which consists of two candles. It is formed when a large red candle, the one we saw in Monday’s trading session partially covers the preceding bullish candle which was formed on Friday.

Also, the bearish candle has to close below the midpoint of the previous bullish candle.

The NSE Nifty which opened at 10,732.35 rose to an intraday high of 10,736.15 but then bears took control at Dalal Street and pushed the index towards 10,600 levels. It hit an intraday low of 10,604.65 but managed to recoup half of losses in the last couple of hours of trade before closing the day at 10,657.30, down 57 points.

The index closed below 13-EMA, 5-EMA, and 50-EMA but still maintained the crucial support which is 100-EMA at 10,575.

Formation of a Dark Cloud Cover after a bullish candle does not augur well for the bulls and traders should avoid short term bets for the time being, experts suggest.

“Nifty50 continued its see-saw kind of movement as it witnessed a choppy session which finally resulted in a Dark Cloud Cover kind of technical formation on candle stick charts,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

He said lack of follow through to strong upmove witnessed in Friday’s session accompanied with smart recovery after erasing all the gains of Friday on intraday basis is still suggesting that this market lacked a direction perhaps owing to global trade related uncertainities.

He further said hence, it looks prudent on the part of traders to avoid short term bets for time being and to focus on larger trends breach of which may chalk out the future course of action for the indices. “On the downsides 10,550 is still looking like a sacrosanct support breach of which shall take the indices below 10,400 levels and may also result in test of 200-Day Moving Averages where as a decisive close above 10,840 shall usher in a sustainable uptrend.”

Market Outlook by Jayant Manglik, President, Religare Broking said the Nifty is not giving away any cue while continue fall on broader front has pushed the bulls completely on the back foot. “At the same time, it has result in oversold positions too so possibility of intermediate rebound can’t be ruled out. Traders should restrict their trades in such scenario.”

India VIX moved up by 3.94 percent at 13.37 levels. On the option front, maximum Put open interest (OI) was seen at 10,600 followed by 10,500 strike while maximum Call OI was seen at 11,000 followed by 10,800 strike.

Put writing was seen at 10,500 followed by 10,600 while Call writing was seen at 11,000 and then 10,900. Option band signifies a trading range between 10,600 to 10,750 zones.

“Nifty index failed to hold above 10,700 levels and remained under pressure for the most part of the trading session. It formed a Bearish Candle on daily scale which means that selling is witnessed at higher levels,” Chandan Taparia, Associate Vice President | Analyst-Derivatives, Motilal Oswal Securities told Moneycontrol.

Now till it holds below 10,660 zones, it could slip towards 10,600 then 10,550 zones, while on the upside hurdles are seen at 10,700 then 10,770 levels, he said.

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