Engulfing Pattern forms on Nifty and Nifty bank indicating a pause in the trend and possible reversal. There was some selling pressure seen as the day opened but indices managed to sustain the previous days low. At the same time, we have seen selling pressure near the previous day’s high that dragged the key benchmark index to close lower than the previous day. The pattern is not bearish engulfing per se but what we have seen is the bears were aggressive and the day completely engulfed the previous day range.
The breadth was exhausting since morning as we witnessed many major stocks witnessing profit booking. All major sectors were in red barring IT and Diversified. The Key benchmark components were indicating breadth being negative since more than 70% of the stocks were in red shredding 0.5 to 4% while gainers were majorly from top-weighted stocks that held onto their gains and added 0. – 1.6%.
The Sentiments are buoyant and managed to absorb the rising crude oil prices and worries over inflation and outperform global markets. On the Daily Scale in Nifty, RSI is still making a lower high as compared to the new highs in the Index, there is a positive signal from the MACD. Though the trend is intact but what we are seeing is an expansion in prices with weak market internals indicating we may see some short term correction. We would want to look at some cool off in Volatility, identify meaningful dips and wait for opportunity.
We believe Nifty should be well within a broader range of 18100 to 18500 for some time before going any further as consolidation is in the offing. Nifty Bank, on the other hand, has very strong support at 38500 – 38700 while on the higher side the resistance is now placed at a psychological mark of 40000.