Bank Nifty forms bearish engulfing candle

After giving downward sloping trendline breakout at 27,300 level on March 5, 2019, we have seen a massive rally of 2,700 points in the Bank Nifty index. However, the index has shown the first sign of weakness and formed bearish engulfing candle on the daily scale. The bearish engulfing candlestick pattern is considered to be a bearish reversal pattern and usually occurs at the top of an uptrend.

Going ahead, if the index slips below the Friday’s sessions low of 29,508.70 and trades convincingly below this level, then there is a high probability that Friday’s high point of 30,008.10 would become a temporary top for the index. The 14-period RSI and daily stochastic has also given a negative crossover in the overbought region which suggests pause of the uptrend. Moreover, there has been a negative divergence between the daily stochastic and the index price movement, which suggests limited upside.

Derivatives data suggests that among Bank Nifty Calls, the 30,000 strike price of March 28, 2019 weekly expiry is the most active call. Whereas among the Bank Nifty Puts, 29,500 strike price of March 28, 2019 weekly expiry is the most active Put. For the March 28, 2019 weekly series, the maximum open interest (OI) outstanding for Calls were at 30,000 strike price and that for Puts were at 29,500 strike price.