market outlook: Tech View: Nifty50 forms a Bearish Engulfing Pattern; trend weakening

NEW DELHI: Despite a gap-up start, Nifty fell over 100 points to close below the 12,250 mark on Monday. In the process, the index formed a large bearish candle that engulfed all the candles formed in last few days, and thus creating a Bearish Engulfing Pattern on both daily and weekly charts.

The index also formed a Black Marubozu on the daily chart, adding further to the bearishness. If the index sees a negative start on Tuesday, it will confirm the weakness.

A large negative candle formed after an opening gap-up suggests that Monday’s swing high will be a crucial top reversal pattern, said Nagaraj Shetti, Technical Research Analyst at HDFC Securities, who believes follow-through weakness could confirm the reversal.

“Nifty’s short-term trend seems to have turned down and more weakness could be in store in the short term. The next lower level to be watched is at 12,100, which could be reached in the next few sessions,” Shetti said.

For the day, the index closed 121.60 points, or 0.98 per cent, higher at 12,230. It hit an all-time high of 12,430 during the session.

“Nifty has fallen towards its 20-DMA and can slide towards its daily lower Bollinger Band near 12,013. Any bounce towards the 12,280-12,300 range is likely to attract fresh selling,” said Chandan Taparia of Motilal Oswal Securities.

Mazhar Mohammad of Chartviewindia.in said the upside for the index will remain capped at 12,400 level.

He advised traders to create fresh shorts either on bounce into the 12,250–290 zone or if Nifty trades below the 12,200 level for more than 30 minutes on Tuesday and look for a target close of the 12,050 level with a stop loss above 12,350 on a closing basis.