This Candlestick Pattern suggests Nifty may consolidate in the near-term

The Nifty has declined up to 7 per cent in the recent past instances after formation of the Bearish Counterattack Candlestick Pattern on the daily scale, shows technical chart.

The NSE Nifty 50 index came within striking distance of the 25,000-landmark as the NSE benchmark hit a high of 24,999.75 in trades on Monday, July 29, 2024. The index eventually ended on a flat note at 24,836 on account of selling pressure at the higher levels.

In the process, the Nifty has seen the formation of a 'Bearish Counterattack Candlestick Pattern’ on the daily chart. 

'Bearish Counterattack Candlestick Pattern' explained

A bearish counterattack candlestick pattern is a two-candle reversal pattern. 

The first candle is long and bullish, thus reflecting strong buying support at the underlying stock/ index counter.

Whereas, the second candle opens higher, extends the rally, but closes near the previous candle's close; thus implying a counterattack by the bears in the market.

 

These kinds of the patterns are common, towards the end of an uptrend. However, traders should wait for a confirmation which can be ascertained based on additional technical indicators, such as a flat or lower close in the new few sessions or resistance at the highs of the second candle. 

Theoretically, the selling pressure tends to accentuate as and when the underlying index/ stock breaks below the lows of the first candle, which in this case stands at 24,410. The same further reiterates the reversal signal.

What does this imply on the Nifty at present?

The NSE Nifty 50 index surged 1.8 per cent on Friday, July 26 to close at 24,835 – thus fulfilling the requirement of the first candlestick pattern.

In the very next trading session on Monday, July 29, the Nifty opened with a positive gap of over 100 points at 24,943, and went on to hit a high of 24,997.75. The Nifty eventually ended near the previous day’s close at 24,836 – also fulfilling the condition for the second candlestick pattern.

This implies, that the high around the 25,000-mark, shall act as an immediate resistance for the Nifty 50 index. Whereas, break and sustained trade below the lows of the first candle, in this case is 24,410, can accentuate the fall in the market. CLICK HERE FOR THE CHART

What does historic trend suggest?

In the last five months, the Nifty has seen formation of the 'Bearish Counterattack Candlestick Pattern’ on four occasions; wherein the index did correct before resuming the uptrend on three occasions and moved sideways on the remaining one occasion.

First instance: The Nifty ended 0.6 per cent higher at 22,474 on March 06 after registering a high of 22,497 and a low of 22,224. In the next trading session the index opened gap-up but eventually settled below the first candle’s high. The Nifty thereafter went on to decline 3.5 to a low of 21,710 in the subsequent 8 trading sessions. 

Second instance: On April 29-30, the Nifty saw formation of the twin candles, with a low of 22,442 and a high of 22,783 and close around 22,600 levels in the two trading sessions. In the subsequent 8 trading sessions the Nifty declined 3.5 per cent.

Third instance: On May 23-25, the Nifty settled around 22,957, after hitting a high at 23,026 and a low of 22,557.  The index eventually plunged 7.3 per cent in the next 7 trading sessions.

Fourth instance: On June 7-10, the Nifty ended around 23,260 after hitting a high of 23,412. The index moved sideways for the next two trading sessions, and the close above the high of the second candle on June 14 to dismantle the Bearish Counterattack Candlestick pattern.