Nifty forms bearish engulfing candle on monthly chart

NSE Nifty ended its five-week losing streak and closed with a decent gain. The Index gained 169.50 points or 0.88 per cent for the last week. BSE Sensex is also up by 0.77 per cent. The Mid-cap and Small-cap indices are up by 2.53 per cent and 4.36 per cent, respectively. On the sectoral front, The Nifty Realty and Metal indices were the top gainers with 5.7 per cent and 5.1 per cent. Only FMCG and Pharma indices closed negative by 0.52 per cent and 0.09 per cent, respectively.

All other sector indices closed with decent gains. The FIIs sold Rs20,620.65 crore, and the DIIs bought Rs25,016.95 crore worth of equities in August. The India VIX has declined by 6.01 per cent to 11.36. The Nifty has formed a bearish engulfing candle (with a slight difference) on a monthly chart. The Index has snapped the five-day rally by declining 500 points in August. Interestingly, it also ended the five-week losing streak last week. It closed at the 10-week average.

Last week, it traded in a 234.9 points range and finally closed with 169.5 points gains. The Nifty has mostly traded in the 19,250-19,500 zone for the past ten days. It formed a base after a decline of 786 points from its lifetime high. This 10-day flat base is very crucial for future direction. The 19,250 support holds a solid significance for the market direction. It is absolutely essential for the Nifty to reverse the trend. After several attempts, it decisively closed out of the slopping channel.

The price action within the flat base is like a double bottom, and the valley point is at 19,453 points. If the Nifty closes above the 19,453-19,483 zone, we may see a more positive bias in the Index. The high of 19,584 on August 24 will be a crucial near-term resistance. To end the current intermediate downtrend, it must close above the 19,585 for at least two days.

On the flip side, if the Nifty breaches the 19,250 solid support, we may see a strong dip with increased volatility. It may test the 100DMA of 18,853pts. It may signify a change in market structure and sentiment and also may lead to a sharp decline. There are at least four gaps in the prior uptrend. These continuous gaps in an impulsive rally will be filled sooner or later.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)