Technical View - Aug 31, 2020 - Mr. Nagaraj Shetti, Technical Research Analyst, HDFC Securities

After showing one way upside momentum for the last six sessions, Nifty tumbled sharply from the highs on Monday and witnessed a massive profit booking from the highs. Nifty opened on a sharp upside note, made a new swing high of 11794 in the early part of Monday's session. Sharp profit booking encountered from the highs and the market declined sharply and closed near the day's low.

A long bear candle was formed, that has engulfed the high low range of the last six sessions. This pattern could be considered as a bearish engulfing pattern. Hence, formation of such pattern at the new swing highs and near the hurdle could be considered as an important reversal pattern. We need follow through weakness in the subsequent session to confirm the reversal pattern.

The minor degree of higher highs and lows observed on the daily chart. Previously, any downward correction from the highs have consumed 1-2 sessions of weakness and Nifty rebounded sharply from the lows. But it seems such pattern is unlikely to repeat, as we predict this bearish engulfing to be an important reversal pattern. Hence, the swing high of 11794 could be a crucial overhead resistance.

The upside breakout of intermediate resistance of 11450-11500 as per change in polarity (trend line resistance as per weekly/monthly chart) has turned out to be a false downside breakout as of now. This is negative indication.

The short term trend of Nifty seems to have reversed. Follow-through weakness is expected to confirm this reversal pattern. We expect sell on rise opportunity on any upside bounce back attempt around 11450-11500 levels. One may expect further weakness in the short term and the next lower levels to be watched at 11100-11000.

Source : Equity Bulls

Keywords