Bank Nifty caution warranted as it has formed a bearish engulfing pattern!

On Thursday, Bank Nifty ended the day with a loss of 0.62%.

On the weekly expiry day, volatility stayed elevated as a result the index oscillated in the range of over 1000. At one point in the day, the index almost tested July 29 low, however, recovery in the later part of the trading session helped index to trim some of the losses, despite that, the Bank Nifty formed the bearish engulfing candle post the hanging man candle formation in the prior trading session.

During the day, the index has declined below the 8EMA. The RSI also closed below its 9-periods averages. The histogram also declined. The highest volume recorded in Bank Nifty since June shows a serious distribution. On Thursday, intraday range was the highest one in the current upswing. It once again faced resistance around 38150-38250 zone. For the last three days, it has made several attempts to close above this zone, however, all in vain. The three parallel tops and an engulfing candle give us some suspicion about the continuation of the current uptrend. The Stochastic oscillator has given a sell signal in the extreme over-bought zone, like RSI. The Elder impulse system has also formed three consecutive neutral bars.

Strategy for the day

Bank Nifty has formed a bearish engulfing candlestick pattern post a hanging man formation indicates ominous sign. Along with this, the stochastic oscillator has given a sell signal, so caution is warranted. Hence, a move below level of 37690 would be negative for the Bank Nifty, maintain a stop loss of level of 37800. Sustaining below 37690 would open gate for lower levels of 37370 on the downside, below this level continue with a trailing stop loss. On the upside, a move above 37900 is positive, and it can test 38300. Maintain a stop loss at 37790. Above 38300, continue with a trailing stop loss.