Formation of a Dark Cloud Cover after a bullish candle does not augur well for the bulls and investors should stay on sidelines till a clear trend emerges. A break above 10,785 could open fresh targets towards 10,900 while a break below 10,680 could push the index towards 10,600 levels.
The Nifty 50 which started with a gap-up failed to hold on to gains and closed near its intraday low forming a bearish candle on the daily charts which also resembles a ‘Dark Cloud Cover’ kind of pattern.
A Dark Cloud Cover pattern is a bearish pattern which consists of two candles. It is formed when a large red candle, the one we saw in Thursday’s trading session partially covers the preceding bullish candle which was formed on Wednesday.
Also, the bearish candle has to close below the midpoint of the previous bullish candle.
Formation of a Dark Cloud Cover after a bullish candle does not augur well for the bulls and investors should stay on sidelines till a clear trend emerges. A break above 10,785 could open fresh targets towards 10,900 while a break below 10,680 could push the index towards 10,600 levels.
The Nifty50 which opened at 10, 779 rose to an intraday high of 10,785.55 but then bears took over D-Street and pushed the index towards 10,700 levels. The index bounced back after hitting its 5-DEMA placed at 10,710. It hit an intraday low of 10,705 before closing the day at 10,716.
The Nifty 50 appears to have registered a ‘Dark Cloud Cover’ kind of bearish formation as it opened higher but went on to close below the mid-point of Wednesday’s candle body. Besides, unless 10,785 is taken off on the upside there remains a possibility of Double Top kind of another bearish formation charts.
Hence, negative sentiment in the market shall pick up momentum if Nifty 50 closes below 10,680 in next session. In such a scenario initial target can be close to 10,600 levels whereas on breach of this traders should not be surprised if the correction gets extended towards its 50 Day Exponential Moving Averages whose value is placed around 10,500 levels.
India VIX moved up by 1.09 percent at 14.43. Volatility has been moving upwards from the last eight consecutive sessions from 12.02 to 14.43 levels.
On the options front, maximum Put OI is placed at 10,500 followed by 10,600 strikes while maximum Call OI is placed at 11,000 followed by 10,900 strikes.
Fresh Put writing is placed at 10,700 while Call writing is seen at 11,000 and then towards 10,900 strikes.
“Option data suggests an immediate trading range between 10,650 to 10,850 zones. The Nifty50 formed a Dark Cloud Cover on the daily scale and found supply near to previous week’s high of 10,784 mark.
It is finding the absence of follow up buying at higher levels but supports are also intact as it has been making higher highs – higher lows on the weekly scale.
Nifty continues to holds above 10,680, it can extend its up move towards 10,780 and then towards 10,800 zones while a hold below 10,680 could drag it towards the major support of 10,638 – 10,600 zones.
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