Market Overview: Nifty 50 Futures
Nifty 50 Strong Bull Reversal from Major Support on the weekly chart. The market tested a major support zone that had held multiple times throughout the year, initially with a strong bear bar that closed near its low. However, the bulls responded immediately with a powerful bull reversal bar that closed near its high and completely engulfed the prior week’s range, suggesting that the market is now always-in long. This type of decisive rejection of lower prices from a well-established support level increases the probability that the next leg will be up. On the daily chart, Nifty 50 has been forming a wedge bottom, which is typically a bull flag and a sign that the bears are losing momentum. Each successive push down in the wedge shows diminishing selling pressure, with the most recent bars displaying overlap and lack of strong bear closes. Traders may watch for a breakout above the wedge trend line as confirmation that the reversal is underway, with the expectation of at least a test of the middle of the recent bear channel.
Nifty 50 futures
The Weekly Nifty 50 chart
- General Discussion
- Traders who are holding a long position from the major support zone may continue to hold. The strong bull reversal bar from support is a sign that the bears failed to create sustained selling pressure. Traders may move their stops to below the low of the reversal week or the bottom of the support zone.
- Traders who are holding a short position may exit on this week’s close. The market reversed strongly from major support, and the close near the high of the week shows strong bull commitment. Staying short into a clear bull reversal from a tested support level increases risk significantly.
- Traders who are not holding any position may enter long on a pullback to the high of this week or on a breakout above this week’s high. A limit order near the middle of this week’s range may also be considered if the market pulls back. A wide stop below the major support zone is appropriate given the weekly timeframe.
- Deeper into price action
- The market tested major support that had been established earlier in the year with a strong bear bar that closed near its low. However, the bulls responded immediately with a strong bull reversal bar that closed near its high and completely engulfed the prior week’s range. This type of two-bar reversal from a key support level is typically a reliable sign that the market is always-in long.
- The major support zone had been tested multiple times earlier in the chart, and each test resulted in at least a brief bounce. When the market dropped to this level again with a strong bear bar, bears may have expected follow-through selling. Instead, the bulls bought aggressively, creating a clear rejection of lower prices. This increases the probability that the next leg will be up.
- The bull reversal bar has a small tail at the bottom and closed near its high, showing strong buying pressure throughout the week. Traders should note that this is not a doji or a weak signal bar. The body is large and the close is decisive. When a market reverses from support with this kind of strength, chances are that the first pullback will be bought.
- Patterns
- The major support zone represents the bottom of a broad trading range that has contained price action for an extended period. The strong reversal from this support suggests that the market may attempt to return to the top of the range. Traders should expect at least a test of the middle of the range before the bears have another opportunity to create selling pressure.
- The bull reversal bar can be seen as a failed breakout below the major support. When a market breaks support with a strong bear bar but immediately reverses with an even stronger bull bar, it is often a sign that the breakout attempt exhausted the bears. The bulls now have control, and the market is likely in the early stages of a measured move up from the support zone.
The Daily Nifty 50 chart
- General Discussion
- Traders who are holding a long position from the wedge bottom may continue to hold. The market has formed a clear wedge bottom, which is typically a bull flag and a sign that the market may be in the process of reversing up. Traders may place stops below the most recent swing low or below the bottom of the wedge, depending on their risk tolerance.
- Traders who are holding a short position may consider exiting on a break above the wedge trend line. Wedge bottoms often lead to reversals, and staying short when the market breaks above the bear trend line increases risk. If the market closes above the wedge with strong follow-through, chances are that the bears will lose control.
- Traders who are not holding any position may enter long on a strong breakout above the wedge trend line or on a pullback after the breakout. A buy stop above the high of a strong bull bar that closes above the wedge line is reasonable. Alternatively, traders may wait for the market to break out and then buy the first pullback to the breakout point. A wide stop below the wedge bottom is appropriate.
- Deeper into price action
- The wedge bottom is a three-push pattern where each successive low is at approximately the same level or slightly lower, but the selling pressure is diminishing. Notice that the bars in the most recent push down are not as strong as earlier in the sell-off. This loss of momentum is typical of climactic selling and suggests that the bears are exhausted. When bears cannot create strong follow-through selling at new lows, the bulls often take control.
- The market has been in a bear trend for several weeks, but the wedge pattern shows that the trend is losing strength. Each push down in the wedge has been met with buying, creating overlapping bull and bear bars near the lows. This two-sided trading is a sign that the market may be transitioning from always-in short to always-in long. The most recent bars show some overlap and lack of strong bear closes, which increases the probability of a reversal.
- Traders should note that wedge bottoms do not always lead to immediate strong rallies. The market may break above the trend line and then enter a trading range before resuming higher. However, the risk-reward for new shorts deteriorates significantly once the wedge trend line is broken. Bulls have a better chance of success buying near the wedge bottom or on the breakout than bears do selling into the pattern.
- Patterns
- The wedge bottom is a bull flag, and the expectation is that the market will eventually break above the trend line and test higher prices. A measured move from the wedge bottom projects a move to approximately the level where the sell-off began. Traders should watch for a strong breakout bar that closes near its high and above the wedge trend line as confirmation that the reversal is underway.
- The entire decline from the left side of the chart can be seen as a bear channel. The wedge is forming at the bottom of this channel, which is a common location for reversals. When a bear channel ends in a wedge bottom, it often signals that the market is ready to at least enter a trading range, if not reverse into a bull trend. The first target for bulls would be a test of the middle of the recent bear channel.
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