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Technical View: Nifty forms bearish candle despite a positive close, consolidation seen

May 19
18:28 2020

The Nifty50 opened strong on global cues buoyed by positive outcomes of a COVID-19 vaccine trial in the US but wiped out most of the gains on India’s coronavirus infections crossing one lakh and selling pressure in the European markets.

The index closed off the day’s high and formed a bearish candle on daily charts, as the closing was much lower than the opening level. This is the tenth time in 12 consecutive sessions that the index formed a bearish candle.

Experts expect the sideways trend in the coming days but if the index breaks 8,800, then the fall can extend up to 8,500.

“Traders are advised to remain cautious by taking a neutral stance and shall consider fresh shorts only below 8,800 levels,” Mazhar Mohammad, Chief Strategist – Technical Research & Trading Advisory, Chartviewindia.in told Moneycontrol.

The Nifty50 started off the trade sharply higher at 8,961.70 and crossed the psychologically important 9,000-mark to hit an intraday high of 9,030.35 in the morning but wiped out two-thirds of the gains by afternoon. The index closed at 8,879.10, up 55.85 points.

“Albeit Nifty50 witnessed a strong opening, in response to positive global cues, by the end of the day, it had given up major part of the intraday gains, which is a cause for concern. Moreover, this strength was on the back of negative advance-decline ratio, hinting that the majority of market participants might have used this rally to pare off either their existing holdings or create fresh shorts,” Mohammad said.

“Nevertheless, when we club the last two sessions of price behaviour, then it appears that the Nifty has formed a bullish Harami formation and hence sustaining above 8,800 levels. A sideways consolidation can be expected going forward and a close above 9,050 can tilt the near-term trend in favour of the bulls,” he added.

The bears will regain an upper hand if they manage to push the index below 8,800 levels on a closing basis, which shall accelerate the selling pressure, with initial targets at 8,500.

Shrikant Chouhan, Executive Vice President, Equity Technical Research at Kotak Securities, advised traders to be careful below the 8,850 level, as the index may fall to 8,700 or 8,500 in the near term.

Most of the losses were due to banks. The Bank Nifty also behaved in same manner as it opened strong at 18,037.15 to hit the day’s high of 18,175.30 but erased gained in the afternoon to drop intraday low of 17,390.65.

After losing nearly 700 points from the day’s high, the index settled at 17486.30, down 86.90 points, and formed a bearish candle on daily charts.

“Structurally, the Bank Nifty has resumed the medium-term downtrend; is expected to test the March low of 16,116 in the short term, while the medium-term target on the downside is as low as 14,500,” said Gaurav Ratnaparkhi, Senior Technical Analyst, Sharekhan by BNP Paribas.

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