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Classic Head & Shoulder Reversal on NIFTY Weekly Chart


NIFTY spot has closed at 10831.40, and facing stiff resistance near 10931 zones which is the high placed on Monday keeping this index under pressure. Nifty has been witnessing a nice uptrend on weekly chart from low 6825.80 which was placed during March 2016. A classic bearish head and shoulder pattern is emerging on weekly chart and this pattern gets its confirmation on break of the neckline which is near 10000 zones. If this pattern gets confirmed then it will open the doors for a retest to flip support which stands near 8900 zones. Price is struggling to hold above 50 weeks SMA which equals to 200 SMA on daily chart. Price resistance near 200 days SMA plays a significant role. 10 weeks SMA has already given a bearish cross below 50 weeks SMA and this SMA on weekly chart equals to 50 days SMA on daily chart. These developments on SMAs suggests that a death cross has already happened in this index. Price has also violated a rising trend line and recently it has experienced resistance near the same while forming right shoulder. Top of current swing (right shoulder) approximately equals to the left shoulder which also complies with rule of symmetry. All these developments are hinting that longer term bullish trend could shift in to a bearish trend.  Upcoming general elections also suggest uncertainty in the market.
14 Periods weekly RSI is now staying below its signal line but current week is still in progress so bearish cross is not yet confirmed. But RSI is hesitating to rise above 60 thus keeping it in bearish zone.
On price action front NIFTY has formed a candle on weekly chart which is having long upper shadow and candle with long upper shadow hints selling pressure.  However, current week is still holding above previous week’s low which was 10814 and any break below this level will add more power to bears.
On daily chart immediate support is seen near 10814-10800 zones and any breach of these levels will result in to an attempt towards 10600 and 10500 zones. Areas of 10500 are very crucial to watch any failure and stability below 10500 will put focus back on 10000 mark. Areas of 10931 can be seen as crucial resistance on the upper side and any recovery above this level might bring another attempt to11050-11080 zones. Key resistance will be at 11200 and any cross and stability above 11200 will put emergence of bearish head and shoulder pattern in doubts whereas failure of 10000 will result in to a neckline break and it will open the doors for attempt towards 9200-8900 zones.

Conclusion: it’s time to stay cautious and one should avoid creating huge long positions until market invalidates emergence of classic head and shoulder pattern by crossing and holding above 11200 zones. Stability below 11200 remains supportive for this pattern and failure of 10500 will add more power to the bearish momentum which is currently under development.


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