However, longer term trend has been negative for this index
but currently we are in a corrective leg after a major down trend and now a
bearish engulfing candle is clearly visible on daily chart which is exactly formed
after closing a gap window which was opened at 10458 on March 12, 2020 with a
huge gap down opening. Based on past evidences we can say that gap areas work
as a crucial resistance in most cases and market reverses its direction after
successfully closing these gap window and recently nifty has closed that kind
of gap window.
Here we are talking about a bearish engulfing pattern which
has occurred near the gap aera and 61.8% Fibonacci correction of entire bearish
leg from top of 12430.50 to low of 7511.10 which is considered a very crucial
reversal area in technical analysis.
14 period RSI is struggling to cross above 70 and it usually
happens when there is down trend in the market. It has been evident in past when
there is down trend in the market RSI fluctuates between 20 to 60 and reading
above 60 is considered overbought and during up trend it fluctuates between 80
to 40 and reading below 40 is considered oversold. Based on this concept right
now RSI is in overbought territory and recently it is showing a potential
bearish divergence and favours a reversal.
We have also drawn a bearish Wolf wave pattern on the chart
by using red coloured trend lines and in this pattern usually point 5 is considered
a potential reversal zone (PRZ) and for this reversal estimated time of arrival
(ETA) is considered near the area where 2 upward sloping line converges and
target for this swing will be near the area where a vertical line connects
convergence of rising trend line and a downward sloping trend line drawn by
connective point 1 and 4.
Based on tools discussed above it seems that slowly market
is shifting to weaker hands.
If we look at VIX index it has crashed badly since march
this year and now trading near its short-term bottom. And for VIX it is very
famous by when VIX is high, go when VIX is low.
Mostly future contracts are still trading on discount from
their spot prices which usually indicates bearish perception of market
participants.
If we look at options data for current expiry then at 10600
huge call writing seen and short covering seen on 10400 and 10200 strike puts suggests
that market is likely to remain below 10400 till this expiry.
Option chain on next monthly expiry expiring on 30 July is
showing call writing at 10500-10400 strikes. Huge long build up seen 10000
strike put also favouring bearishness.
Based on all the evidences above here one can assume nifty
to remain negatively biased as long as it holds below the high of bearish
engulfing that stands near 10554 any recovery above that level will neglect current
bearish developments and then this ongoing up leg can extend up to 10800-11200
zones. In case of stability below 10554 bearish will remain on front seat and
failure of 10280 will result in a primary retest to 10100-10000 zones. 10000 is
a crucial area which is a psychological figure as well as backed by a Fibonacci
cluster thus it can work as strong support but in case of stability below 10000
will open the doors for a retest to 9700-9600 and then 9200 zones.
If you like this detailed analysis on market then express
your interest by leaving a comment on this blog post it will encourage me to
post more charts and explanations like this.
Happy trading!!!
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