Technical View: Nifty forms Dark Cloud Cover pattern, 14,500 crucial level to watch out for


The Nifty50 hit a fresh record high amid positive global cues on January 21 but failed to hold on to the gains due to profit booking in the last hour of the trade. The index fell below 14,600 and formed a bearish candle that resembled a Dark Cloud Cover pattern on the daily charts. All sectoral indices ended in the red.

The BSE Sensex went past 50,000 for the first time to hit 50,096.57 but slipped to close 167 points, or 0.34 percent, lower at 49,624.76.

The Nifty, too, opened strong at 14,730.95 to hit an intraday record high of 14,753.55 but got caught in the bear trap in the last hour. It ended 54.30 points lower to close at 14,590.40

A Dark Cloud Cover is a bearish reversal pattern consisting of two candles. The red candlestick, which is January 21’s candle, opened above January 20’s green candle but profit-taking pushed the index below the midpoint of the candle. The confirmation will come if the Nifty forms another bearish candle on January 22.

Considering the volatility, short-term traders should remain neutral on the long side, Mazhar Mohammad, Chief Strategist–Technical Research & Trading Advisory at told Moneycontrol. Intraday traders with a high-risk appetite can go short below 14,500 for a modest target of 14,400 with a stop above the intraday high, Mohammad said.

“The short-term reversal in the index shall be confirmed if the Nifty closes below 14,500 in next trading session,” Mohammad said.

Moreover, the 50,000-mark hit by the Sensex can be a huge psychological barrier that can prompt the investors to book profits by curbing upsides for a couple of sessions, he said. If the Nifty closes below 14,500, then the correction may get extended towards the recent lows of 14,200, Mohammad said.

If the index manages to get past 14,750, then the rally shall get extended towards the 15,000-mark.

India VIX moved up by 2.92 percent from 21.55 to 22.18 levels, which experts say is expected to increase ahead of the Union Budget 2021.

On the options front, maximum Put open interest was at 14,000 followed by 13,500 strike, while maximum Call open interest was at 15,000 followed by 14,700 strike. Call writing was seen at 14,700 then 15,200 strike, while Put writing was seen at 14,600 and 14,500 strike. The options data indicated that the Nifty could see an immediate trading range of 14,400-14,800.

The Bank Nifty opened gap-up at 32,732.80 and headed towards a new high of 32,842.30 but the second half of the day saw selling pressure that dragged the index to the day’s low of 31,985.55.

The index closed the session with losses of 356.80 points or 1.10 percent at 32,186.90. It formed a Bearish Engulfing candle on the daily scale and in the process to form a Doji candle on the weekly scale, said Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services.

The Bank Nifty has to continue to hold above 32,000 to witness an upmove towards 32,500 and 32,750, while on the downside, support is seen at 31,750 and 31,500, he added.

A positive setup was seen in Havells, Apollo Tyres, Tata Motors, Reliance Industries, Bajaj Auto, Bajaj Finance, UPL, McDowell, Berger Paints, Eicher Motors and Asian Paints. Weakness was seen in Sun TV Network, Indraprastha Gas, Mahanagar Gas, ONGC, PNB, Ambuja Cements, NMDC, Coal India, Aurobindo Pharma and GAIL India, Chandan said.

Disclosure: Reliance Industries Ltd is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Moneycontrol.