Nifty Half Hourly Chart
The Nifty formed a bearish engulfing pattern.Though on the charts it does not look exactly text bookish ( mainly because of practice of the NSE to show the previous day's closing as the opening price) , I would prefer to identify it so, as the opening price on trading terminal showed it as 3500. Also the sensex opened gap up confirming my assumption.
This bearish pattern consists of two candlesticks, the first is white(up day) and the second black (down day).The pattern is valid in the overbought conditions or at resistance points. The bearish second day candle engulfs the previous day's body and creates a potential short-term reversal. However, further weakness is required for bearish confirmation of this reversal pattern.
The candle pattern on the sensex is a "Dark Cloud Cover". The dark cloud cover pattern is made up of two candlesticks, the first is white and the second black. Both candlesticks should have fairly large bodies. The black candlestick must open above the previous close and close below the midpoint of the white candlestick's body.Further weakness is required for bearish confirmation of this reversal pattern.
For both patterns to be considered bearish reversals, there should be an existing uptrend to reverse. It does not have to be a major uptrend, but should be up for the short term or at least over the last few days.
So , the nifty was overbought, and today's action, was to be confirmation of breakout above the 200dema which is significant resistance. Thus one may look for confirmation of a reversal of the uptrend.Also, on log scale, the downtrendline from January 2008 has resisted strongly.
The rising wedge which I have been talking about since a few days has been broken decisivelyon half hourly charts. The targeted move for this is measured from the lowest trough --2962 to the highest peak --3511. So 3511-2962=549 point move. Break point is 3421. So Target is 3421-549=2872. . One can therefore go short with stop loss a few points above the break point of 3421. 3460 should be a good stop as it it was an intraday lower top today.
This has been a very strong uptrend so one may have to face a lot of pressure in trying to take a directional trade. The recent uptrendline is not yet broken. Nifty may find immediate support on this trendline which supports for today at 3197-3223. Other levels are marked on the chart.
Expect a lot of volatility. So be very strict in keeping stop losses.
Happy Trading !!