Market Overview: Nifty 50 Futures
Nifty 50 Bull Channel on the monthly chart. This month, the market closed weakly in a bearish manner, showing poor follow-through after a strong reversal attempt by the bears. On the monthly chart, the market is trading within a bull channel. On the weekly chart, the Nifty 50 also closed weakly in a bearish manner, with a tail at the bottom, indicating the start of a pullback. While the market has broken out bearishly from the head-and-shoulders pattern, the lack of strong follow-through raises the possibility that this breakout could be a bear trap.
Nifty 50 futures
The Monthly Nifty 50 chart
- General Discussion
- The market on the monthly chart is currently trading in a strong bull trend, positioned near the bottom of the bull channel. Due to this, traders should avoid selling at the current levels.
- Since the bears failed to gain momentum after the strong bearish bar, traders can consider entering long positions at the high of the bearish bar. Alternatively, waiting for a bull close and then entering on its high has a higher probability of resuming the bull trend.
- Traders who sold at the low of the large bearish bar should consider exiting their positions if the market produces a strong bull close next month.
- Deeper into Price Action
- Over the past several months, the bears have only been able to produce one strong bearish close, and even that failed to receive proper follow-through.
- Given the strength of the bull trend, the bears will need consecutive strong bearish bars to reverse the trend. However, based on the current price action, the best scenario for the bears is a trading range, not a reversal.
- Patterns
- With the bull trend being strong, many traders are likely to place stop orders at the high of the weak bearish bar, as this is considered a high-1 setup.
- Since the market is trading within a strong bull channel, a potential bear breakout could lead to a trading range, with its height potentially matching the size of the channel.
The Weekly Nifty 50 chart
- General Discussion
- On the weekly chart, the market has experienced a bearish breakout from the head-and-shoulders pattern, but it has not received any significant follow-through.
- Bears who entered short positions during the breakout can wait for another bar to close. If the next bar is a strong bullish bar, traders should exit their short positions.
- However, if the next bar is bearish, this would suggest that the breakout is not a failure but rather a pullback, allowing traders to continue holding their short positions.
- Deeper into Price Action
- The strength of the pullback plays a crucial role in determining the market’s direction. A strong pullback increases the likelihood of a trading range, while a weak pullback (characterized by weak bullish bars) increases the chances of a bearish trend continuation.
- Considering the earlier strong bull trend in the chart, the current bear reversal attempt is equally strong, meaning it has the potential to reverse the bull trend.
- That said, in this bull trend, there have been several instances of bearish reversal attempts that were weak. Each of these weak reversals ultimately resulted in the resumption of the bull trend.
- Patterns
- The market’s bearish breakout from the head-and-shoulders pattern suggests that if the bears achieve strong follow-through, the market is likely to reach the measured move target. This target is calculated based on the height of the pattern.
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