Tech View: Nifty50 forms a Bearish Engulfing pattern\, signals weakness

NEW DELHI: Nifty50 on Monday saw selling pressure around recent swing high of 11,584 and gave up all the gains to end up below the 11,450 level. It engulfed Friday’s bullish candle to form a Bearish Engulfing Candle on the daily chart. Analysts said the 11,500-11,585 range would continue to offer resistance to the index in the short term.

Gaurav Ratnaparkhi of Sharekhan said Nifty filled up the gap area between 11,452 and 11,507 levels, which was created recently on the daily chart.

“It even attempted to test a crucial swing high of 11,585. However, as the index approached the upper end of the sideways range at 11,200-11,585, it faced strong pressure. The 61.8 per cent retracement of the decline from 11,794 to 11,185 levels acted as a key barrier near the 11,561 mark. Thus, the index reversed sharply and formed a bearish Outside Bar as well as a Bearish Engulfing Bear candle on the daily chart. Nifty now looks set to slide towards the lower end of the range i.e.11,200," Ratnaparkhi said.

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For the day, Nifty fell 43 points, or 0.38 per cent, to 11,421. Nagaraj Shetti of HDFC Securities said the 11,500-11,550 range, which was the opening downside gap of September 4, acted as a strong overhead resistance and led to a sharp intraday weakness from the highs.

“This is a negative indication. After the formation of larger positive sequences like higher tops and bottoms till the later part of Aug, Nifty seems to have shifted into a minor negative sequence like lower highs and lows in last 10 sessions. Monday's swing high of 11,568 could be considered a new lower high of the sequence. Hence, one may expect further weakness next session," he said.

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Aditya Agarwala of YES Securities said the bulls failed to take Nifty50 beyond the recent intermediate high of 11,585, which led to profit taking. A sustained failure to take Nifty above the 11,585 level could lead to extended correction, dragging it lower to 11,350 and 112,80 levels. A move above this level can lead to short-covering rally towards the 11,650-11,740 zone,” he said.