Weekly candle was a bearish engulfing pattern and spells bad omen for the bulls. The Bearish Engulfing Pattern is an important top reversal signal.The gap up moves from bottom of 5937 had already made the Nifty vulnerable to profit taking.The Bearish Engulfing Pattern appearing after such a move is more likely to be an important bearish reversal indicator.The filling up of the gaps and the bearish engulfing candle being formed on much higher volumes than on the previous week's bull candle are two more nails in the coffin. Confirmation in the form of a black candlestick, a large gap down or a lower close is required on the third candle. Watch out for these features on the coming week's candle.
The bearish engulfing pattern on daily charts at the high of 6336 on 8th November has finally shown it's bearishness.Though there was sideways movement for the next two days, the high point was not even attempted and soon after Nifty started melting and formed two bearish candles in succession.The trendline joining lows of 5349 and 5937 has also been broken.
Daily charts have been showing negative divergences and the Macd has given a sell.The 5 dema has bearishly crossed below the 10 dema. The close is below the 20 dema which is now resistance at 6155. The 50 dema offers support at 6002.
If the support on the red trendline at 6069 holds then we can see some pullback else a test of the low of 5937 is possible.
Weight of evidence in the short term is towards bearishness.Since strong supports are at 5937-6002 the Nifty may give a technical bounce.Only if the bounce crosses above 6230 should one expect the uptrend to continue. Till the decisive break of 5937 or the cross of 6230 on the weekly charts, trade with caution as it is yet to be proved whether this is just a correction in the uptrend or a reversal.
Happy Trading !!