Index trend and stocks in action on September 04, 2020

After the formation of a bearish engulfing bar on Monday, Nifty for the third straight day traded within the high-low range of the bearish engulfing bar on Thursday. The price action of the day formed a bearish candle and at the same time, it failed to pierce 50 per cent range of the bearish engulfing bar.

Now, what does it indicate or suggest? Generally, after a formation of the widespread bar, the entire D-Street is painted red i.e. bearish sentiments become the talk of the town and everyone expects the fall to continue. However, when things look so obvious and certain, it’s the best time for the pro traders to trap the weak hands.

Now, let us try to understand the price action in layman’s language. Suppose, you run about 4 km per day and on one sunny morning, you feel motivated enough to run triple of what you do daily, i.e. instead of 4 km, you plan to run 12 km that day. Then, what will happen the next day? You will feel exhausted due to the excessive run or you may plan to take rest due to body strain. Similarly, the bearish engulfing candlestick pattern, which was formed on Monday, had a spread of 468 points, which was almost 3.5 times of the 10-day average range. Now it’s but natural that the price might take a breather after such an excessive move but at the same time, the 50 per cent range of the bar, which is near 11,566 is strongly protected by the bears that indicate the bears have not given up.

On the other hand, the bulls have been putting an all-out effort to pierce this borderline of 11,560-11,600 but in vain. However, there are two positive takeaways; the price has not breached the lower level of Monday’s session and we have seen a series of higher lows for the past three trading sessions. Moreover, the index has been trading above the 21- day EMA, which has acted a line of support for the bulls in the recent past.

So, now, after multiple attempts to pierce the range of 11,560-11,600 on the upside, the bulls definitely might be getting itchy and impatient. Now either the bulls would prefer to have a gap-up opening straight above this range, which would boost their confidence or if it doesn’t have in the next 2-3 trading sessions, then probably bears would tighten their grip and on the downside, we might see the levels of 11,440, followed by 11,300 in the near term.

Hence, all eyes in the near term would be on the level of 11,560-11,600.

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