Technical View: Nifty formed bearish engulfing pattern; experts advise selling

February 07
17:28 2020

Bulls failed to keep the momentum going on D-Street as Nifty50 snapped its 4-day winning streak and slipped below its crucial 50-Days Moving Average (DMA) on Friday. The index formed a Bearish Engulfing Pattern on the daily charts.

Nifty50, which opened at 12,151, rose marginally to hit an intraday high of 12154, but bulls failed to hold onto the momentum and bears took over the D-Street pushing the index below 12,100. The Nifty50 hit an intraday low of 12,073 before closing at 12,098 on Friday.

The index has been making higher highs and higher lows in the past 4 trading sessions and witnessed selling pressure near its crucial resistance level of 12200. The next support for Nifty is placed at 50-Days EMA placed at 12054-12000 levels, suggest experts.

A bearish engulfing pattern is formed when a green candle is followed by a large red candle or bearish candle which completely engulfs the smaller bullish candle. The Nifty50 made a small candle in Thursday’s trading session which also resembles a Spinning top formation.

Experts feel that there could be a possibility of further downside if Nifty50 trades below 12,160 levels in the coming week as well. The near term outlook is tilted towards bears as MACD gave a bearish crossover or triggered a sell signal on charts.

On the downside, the first support is placed at 11,950 while on the upside, a close above 12160 could take the index towards 12,266.

“The Nifty50 registered a bearish engulfing formation on daily charts besides marginally closing below its 50-Day simple moving average placed at 12118 but on weekly charts, a strong recovery from the lows of 11614 depicted a Hammer kind of formation,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, told Moneycontrol.

“However, the technical picture at this juncture appears to be tilting in favour of bears as weekly MACD indicator generated a sell signal. Hence, if Nifty is unable to get past 12160 levels in the next one or two trading sessions then slowly it should slide down with an initial target of 11950 levels but correction shall get further accentuated if it fails to hold above 11950 on a closing basis,” he said.

Mazhar further added that considering the evolving technical picture traders are advised to remain neutral on the long side unless Nifty closes above 12,160 levels whereas intraday traders can consider shorting if Nifty trades below 12,070 levels for more than 30 minutes and look for a modest target in the zone of 11,990 – 11,960 levels.Exclusive offer: Use code “BUDGET2020” and get Moneycontrol Pro’s Subscription for as little as Rs 333/- for the first year.

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