Tech view: Nifty forms Bearish Engulfing pattern, signals more pain

The Nifty50 fell for the fourth straight session on Friday to settle below the 10,600 mark. The index formed a robust bearish candle on the daily chart and made lower highs and lower lows for the third straight session. The index made a bearish engulfing formation on the weekly chart, suggesting the possibility of further downside. 

Analysts say the 50-day moving average around the 10,550 level should act as a major support for the index for now. 

The market is expected to head lower and traders should not short but wait for lower levels to enter long positions, said Jimeet Modi, Founder & CEO at SAMCO Securities. 

The index opened lower and failed to enter positive terrain even once throughout the session. The 50-pack index fell to a low of 10,589, before closing at 10,596, down 86.30 points, or 0.81 per cent. 

“Nifty50 formed a Bearish Engulfing pattern on the weekly chart, thereby strengthening the possibility of of multi-week corrective or consolidation after hitting a high of 10,929 level in its eighth week of the rally from the low of 9,951. If the correction does not end around its 50-DMA placed around 10,550 level, then it should ideally extend by 1-2 per cent,” said Mazhar Mohammad Chartviewindia.in. 

Traders are advised to wait for signs of strength before initiating fresh long positions. For this bet, a stop loss below 10,550 on closing basis would be ideal, Mohammad said. 

The index has negated the formation of higher lows on the weekly scale after maintaining the momentum in last seven weeks. 

"As long as it holds below 10,680, weakness could take Nifty towards its next support at 10,550, while on the upside, hurdles are seen at 10,680 and 10,725 levels," said Chandan Taparia of Motilal Oswal Securities.