Market Overview: Nifty 50 Futures
Nifty 50 Sharp Reversal with Strong Bar on the weekly chart. The market reversed sharply from major support with a very large bull bar closing near its high, which suggests strong buying pressure and that the recent selloff may have exhausted itself. This reversal bar indicates the market is likely always-in long, at least temporarily, and traders may expect at least a two-legged rally before bears can resume control. On the daily chart, Nifty 50 has created an unfilled bull gap that remains untested. The gap shows aggressive buying and has been acting as support, with the market forming higher lows since the gap appeared. Traders may watch for either a breakout to new highs or a pullback to test the gap as a potential entry opportunity, as the unfilled gap suggests the bull trend has strong momentum.
Nifty 50 futures
The Weekly Nifty 50 chart
- General Discussion
- Traders who are holding a long position from the major support level should continue to hold. The recent sharp reversal bar is a strong bull signal bar, and the market is showing good follow-through. Traders may move their stops below the low of this strong bull reversal bar to protect profits while allowing room for the position to develop.
- Traders who are holding a short position should consider exiting on this strong bull reversal. The sharp move up from major support with a large bull body closing near its high indicates bulls have taken control. Chances are that any rally will reach at least the moving average or prior swing highs before there is another good opportunity to re-enter short.
- Traders who are not holding any position may enter long on a pullback to the high of the reversal bar. A limit order buy just above the high of the strong bull bar with a wide stop below the major support zone is reasonable. If the market continues higher without a pullback, traders may wait for a two-legged correction before entering long. For traders willing to enter at the market, buying a bull bar closing near its high with a stop below the signal bar is appropriate.
- Deeper into price action
- The most recent bar is a very large bull bar that closed near its high, which is a sign of strong buying pressure. The fact that this bar reversed sharply from the major support level indicates that bulls see value at these lows and are willing to buy aggressively. When a market falls to a support level and then reverses with such a strong bar, it typically means the selling pressure has been exhausted and the market is always-in long, at least in the short term.
- The reversal came after an extended selloff that broke below multiple prior swing lows. The depth of the selloff increased the probability that bulls would step in at some point, and the major support zone proved to be that level. The strength of the reversal bar suggests this is likely the end of the bear trend, at least temporarily, and traders should expect at least a two-legged rally before the bears can resume control.
- The bar before the reversal bar showed a tail below, which was a sign that bulls were beginning to defend the support level. While that bar was not a particularly strong buy signal on its own, it showed hesitation from the bears and set up the sharp reversal that followed. This type of price action at support often leads to a measured move up, with the first target being the prior swing high or the area where the recent selloff began.
- Patterns
- The market has been in a broad bull channel for most of the chart, with higher lows and higher highs forming a rising pattern. The recent selloff broke the bull channel trend line, which suggested the bulls were losing control. However, the strong reversal from major support indicates the bull channel may resume, or at a minimum, the market will enter a trading range between the recent high and the support level.
- The sharp selloff followed by the strong reversal bar creates a potential spike and channel pattern in reverse. If bulls can create follow-through bars above this reversal bar, chances are that the market will form a new bull channel from this low. The first leg up is already complete with the reversal bar, and traders should watch for a second leg that tests the prior resistance levels.
The Daily Nifty 50 chart
- General Discussion
- Traders who are holding a long position from the recent lows should continue to hold. The market has created an unfilled bull gap, which is a sign of strong buying pressure and typically acts as a magnet that the market will test. Traders may move their stops to below the low of the gap or below the most recent swing low to protect their position while allowing room for normal pullbacks.
- Traders who are holding a short position should have exited when the market gapped up strongly. The unfilled gap indicates the market is always-in long, and any attempt to hold shorts against such strong buying pressure is low probability. If traders are still short, they should exit on any pause or weak bull bar and wait for the market to fill the gap or show clear signs of reversal before considering new short positions.
- Traders who are not holding any position may enter long on a pullback to the top of the unfilled gap. A limit order buy at the gap high with a stop below the gap is a high probability setup, as gaps often act as support. If the market continues higher without testing the gap, traders may wait for a two-legged pullback or a bull flag before entering. For aggressive traders, buying above a strong bull bar closing near its high with a tight stop is appropriate, but the risk is that the market may pull back to test the gap before continuing higher.
- Deeper into price action
- The unfilled bull gap is significant because it shows that bulls were aggressive enough to create a price void that has not yet been tested. When a gap remains unfilled for several bars, it typically means the buying pressure is strong and the market is likely to continue in the direction of the gap. The fact that the market has been making higher lows since the gap appeared confirms that bulls are in control and bears have not been able to push prices back down to fill the gap.
- The bars following the gap have shown some overlap and hesitation, which is normal after a strong move. However, none of the pullbacks have been deep enough to fill the gap, and the lows have been getting higher. This type of price action suggests the market is forming a bull flag or a tight trading range before the next leg up. Traders should expect the market to either break out to new highs or pull back to test the gap as support before resuming the bull trend.
- The selling pressure that preceded the gap was strong, with several large bear bars pushing the market to new lows. The fact that bulls were able to reverse this bearish momentum with a gap up indicates a significant shift in market sentiment. This type of sharp reversal often leads to a measured move, with the market traveling at least as far above the gap as it fell before the gap. Traders should watch for follow-through buying and avoid trying to pick a top until there are clear signs of exhaustion.
- Patterns
- The market appears to be forming a bull flag or a tight bull channel after the gap. The series of overlapping bars with higher lows is typical bull flag price action, where the market consolidates gains before the next leg up. If this pattern plays out, traders should expect a breakout above the recent swing high, with the measured move target being the height of the prior selloff added to the breakout point.
- The unfilled gap itself is a pattern that often leads to a test. Markets have a tendency to fill gaps, and when they don’t, it usually means the trend is very strong. However, even in strong trends, the market will often pull back to test the gap as support before continuing. Traders should watch for this test as a potential entry opportunity, as buying at the top of an unfilled gap with a stop below it offers a good risk-reward setup with clear stop placement.
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