 "These 2 chart patterns signal more pain likely for Nifty; can break 24,000")
The NSE Nifty 50 index was seen testing its 20-DMA (Daily Moving Average) support for the second straight day on Monday amid the weakness in global markets. The Nifty 20-DMA stands at 24,845.
The Nifty had hit a low of 24,801, and was seen quoting around 24,840 levels as of 10 AM. The NSE benchmark index has shed over 500 points or over 2 per cent from its all-time high of 25,333.60 registered on September 02.
Technically, these are the two key factors which indicate that the Nifty may witness further weakness in the month of September.
Firstly, the Nifty has started the month after formation of a 'Hanging Man' structure on the monthly scale in August. Technically, a 'Hanging Man’ structure after a rally tends to signal likely trend reversal. The Nifty had surged 12 per cent in the preceding three months.
A 38 per cent retracement of the entire rally suggests a likely downside target of 24,200 for the Nifty 50; whereas, a 50 per cent dip could lead the index towards 23,885 levels.
Secondly, the Nifty has seen formation of a 'Bearish Engulfing Pattern' on the weekly scale late week. This pattern also indicates a likely reversal in an upward price trend. In a 'Bearish Engulfing Pattern' the high and low of the present candlestick is longer than that of the previous candlestick; meaning the latest candlestick engulfs the previous one with a negative close.
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That apart, the key momentum oscillators both on the daily and weekly chart have observed negative crossover; thus suggesting a possibility of an impending market correction.
The weekly chart suggest key support at its 20-WMA (Weekly Moving Average) which stands at 23,900 levels; below which next support for the index is seen at 23,565 levels.
Meanwhile, at present, the Nifty 50 is seen testing support around its 20-DMA; below which next support stands at 24,600 - its 50-DMA. The daily chart suggests that the upside for the Nifty for now may be capped around 25,200 levels; with interim resistance likely at 25,030. CLICK HERE FOR THE CHART
Key levels to watch on the Nifty 50 index
Support: 24,845; 24,600
Resistance: 25,030; 25,200
Factors that can dismantle this bearish set-up
For Nifty to dismantle this bearish set-up; firstly the index will need to sustain above its short-term moving averages. Thereafter, the index will need to quote consistently above 25,030 levels.
On the weekly scale, break and close above 25,333 levels shall eventually dismantle this bearish set-up.