Technical View | Nifty forms Long Black Day pattern; pause in correction likely after 5-day fall


The Nifty50 on June 16 fell nearly 500 points from the day’s high and breached its previous 52-week low level after the US Federal Reserve announced a 75 bps hike in the funds’ rate last night. In the process, the index formed a large bearish candle, resembling a Long Black Day kind of pattern on the daily charts.

The rate hike was the biggest increase since 1994 to rein in inflation that hit the highest level (at 8.6 percent) since December 1981. That apart, the Fed indicated another 50-75 bps hike in July policy meeting, which experts feel can slow down the growth in the world’s largest economy that can have some impact on other countries including India.

The volatility index (India VIX) climbed above 28 levels intraday given the global correction amid fears of slowing growth, but later on, showed significant recovery. India VIX, the fear index closed at 22.88 levels, up by 3.3 percent, which is still above the crucial 20-mark indicating the favourable trend for bears and volatile swings going ahead.

The broader market also witnessed a kneejerk reaction as the Nifty Midcap 100 and Smallcap 100 indices corrected more than 2 percent and 3 percent, respectively on weak market breadth. About eight shares declined for every rising share on the NSE.

Also read – Sensex, Nifty at fresh 52-week low: 8 factors dragging the market

Even the breadth in Nifty50 was pathetic as 48 shares declined against 2 advancing shares.

Not a single sector escaped from the bloodbath. Nifty Metal was the biggest loser, down more than 4 percent, followed by Bank, IT, Auto, Financial Services, Oil & Gas, Consumer Durables, and Realty which corrected around 2-3 percent.

The Nifty50 started off the day higher at 15,832 but gradually erased all the gains in the morning session itself and slipped to 15,369.80, the fresh 52-week low. The index closed at 15,360.60, the lowest closing level since May 2021, down 332 points or 2.11 percent.

“Nifty50 registered a Long Black Day kind of formation, in response to the Federal Reserve rate hike, as it shed around 500 points from the intraday high of 15,863 levels,” Mazhar Mohammad, Founder & Chief Market Strategist at Chartviewindia said.

Also read – Taking Stock | Sensex, Nifty decline for the fifth straight day; metals worst hit

However, the only solace for the bulls at this point in time is the fact that after the fall the index exactly hit the lower boundary of a three-month-old downsloping channel with an intraday low of 15,335 levels. Hence, some consolidation and pause in the downfall can be expected around the current levels, the market expert said.

As the larger trend is down, the expert feels if the Nifty slips below 15,344, then the weakness shall extend towards 15,055 levels. However, upsides, if any, shall remain capped around 15,890 levels, the expert added.

The moving average convergence and divergence (MACD), and Stochastic, which are generally known as sentiment indicators, already hinted at the downward move and still indicated there could be more pressure in the market.

Also readGainers & Losers: 10 stocks that moved the most on June 16

MACD had given a negative crossover (indicating a bearish signal) on Monday itself and still trended southward, while there was already a negative crossover in the Stochastic indicator in the initial days of this month.

“The closing below 21 months moving average (MMA) suggests downside movement in the counter. Furthermore, Nifty has faced resistance from 15,860 levels and showed selling pressure & given a breakdown of its horizontal line and closing below the same is a sign of more weakness in the trend. Nifty has given closing below 100 hourly moving average which indicates downside moment in the counter,” Palak Kothari, Research Associates at Choice Broking said.

Kothari further said the momentum indicators Stochastic & MACD were trading with a negative crossover on a daily chart which suggested a southward journey in the counter.

On the option front, maximum Call open interest was seen at 16,000 strike followed by 16,500 strike while maximum Put open interest was seen at 15,500 strike followed by 15,000 strike.

Call writing was seen at 15,500 strike then 15,600 strike while there was a minor Put writing at 15,200 strike then 15,000 strike. Option data clearly indicated that there could be an immediate trading range of 15,000 to 15,700 levels for the Nifty50.

Bank Nifty also opened positive at 33,649 but failed to surpass a key hurdle of 33,750 levels and nosedived to hit a day’s low of 32,652. It closed near its intraday low with losses of 722 points or 2.17 percent at 32,617.

The index has formed a big Bearish candle on a daily scale and broken its immediate weekly support zones. Now, till it holds below 33,000 levels, weakness may be seen towards 32,250 and 32,000 levels whereas hurdles are placed at 33,000 and 33,333 levels, Chandan Taparia, Vice President | Analyst-Derivatives at Motilal Oswal Financial Services said.

Among F&O stocks, there was weakness in ONGC, NALCO, Hindalco, Vedanta, Tech Mahindra, Jindal Steel & Power, RBL Bank, SAIL, IndusInd Bank, InterGlobe Aviation, Apollo Tyres, Aditya Birla Fashion & Retail, Zee Entertainment Enterprises, Coal India, UPL, NMDC, Canara Bank, Wipro, PFC, Tata Steel, Tata Chemicals, BHEL, PNB, Godrej Properties, LIC Housing Finance, Tata Motors, Bharat Forge and IRCTC, said Taparia, adding Nippon Life India and Nestle saw positive setup on Thursday.

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