In my previous post we discussed about the possibility of a rally in the Nifty and its likely upside target of 3435. I had also mentioned that a confirmation is necessary in the daily/weekly charts for bullish reversal.
Nifty made a high of 3241 on November 5 but a bearish "three outside down" candlestick pattern (bearish engulfing pattern followed by a redcandle and lower close) was also formed. This indicated a bearish reversal in daily chart. Nifty closed higher for the next two days but for the last 3 sessions it has closed negative. MACD and Wilder's DMI both favour bearishness on weekly chart.
External factors like falling crude prices (from $147 per barrel to $57 per barrel) have not made any impact on Nifty. Readers may be aware that while Nifty went up from 1000 in 2003 to 6300 in January 2008, crude prices were also going up, from approximately $30 per barrel to $100 per barrel. So it is only the demand/supply forces determine the Nifty and its trend.
Let us now discuss the futures contracts of Nifty, Bank Nifty, Bharti Airtel, Infosys and Reliance. It is to be noted here that the charts are based on data for November contracts. The Open Interest is shown as green line.
Nifty:
The October 2008 contracts for Nifty expired on 29/10/2008. Few days prior to this, selling was witnessed in the November contracts as prices declined. This indicates a sell off. On 28th October Muhurat trading was conducted and hence the volume was low. We can see a healthy uptrend in futures since rising prices were accompanied by rising volumes. However, similar to Nifty (Spot), a three outside down candlestick pattern was formed, confirming the bearish reversal. When prices rose afterwards, volumes declined; this was followed by falling prices and rising volumes. After the 'healthy' uptrend, volumes should have ideally fallen when prices fell. This would have meant bullishness. Now that the volumes are rising with falling prices, we may conclude that the Nifty future is likely to test its lower support of 2207.
Bank Nifty:
We can observe a similar pattern in Bank Nifty too. However, no candlestick formation could be observed at the top of the uptrend.Bharti Airtel:
Two huge "falling windows" or "downward gaps" were observed prior to the uptrend. In this case too, a bearish three outside down candlestick pattern was formed with a downward gap on the third day and increased volume. There is some sell off occurring over the last few trading sessions.Infosys:
The most recent high of 1414 remains a strong resistance. The contract is now moving on a sideways pattern. The volumes are also inconsistent. This means that the market is currently undecided over the direction. Interesting to note that the sideways movement started on October 10, well before the expiry of Nifty October contracts.Reliance:
The "falling window" formed on October 16 is acting as a strong resistance for the stock futures. Similar to Bharti Airtel, a three outside down pattern with a downward gap on the third day was formed. Rising volumes and falling prices over the last 3 sessions indicate sell off.Conclusion:
Current technical scenario suggests that Nifty's bearish trend is likely to continue for the medium term.