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Nifty - Monthly Three Crows RED Candles Formed - Expect a short-term bullish rally?

The nifty 50 Index previous week closed at 17465.80, which is very much near Budget Day Low, which is 17353.40.

The main question is are we preparing for breaking down in a big way?

Let us discuss, what happened and how and When?

  1. At the time of In Covid 19 crash, all world markets fall altogether. Nifty Touched its low of 7511.10 on 24 March 2020.

  2. A bunch of new traders in India joined as soon as the market started rising, which crossed 10.7 million from April 2020 to Jan-2023

  3. FIIs started outflow from April 2022 onwards from Indian Equities, which is continue till the previous trading day of Feb -2023

  4. According to SEBI data, referred to AMFI data, Mutual Funds, and Retail traders were net buyers, whatever FIIs were selling

  5. After the Hindenburg report, Adani Saga started and the major culprit was PSU Banks, LIC, and Retails traders. This includes Mutual Funds that have a large exposure to Adani Stocks

  6. Conclusion - Retailers are BIG losers, Direct or Indirect

Nifty 50 Index Monthly Chart

As per the Monthly chart, we can see that from RED candles for the last three months, the Nifty 50 Index is closed in RED only. Three continue RED Candle Sticks are called Three Corws in technical analysis.

What is the Three crows candlestick pattern?

The three-crows pattern also referred to as the “three black crows”, is a reversal pattern found at the end of an uptrend or Downtrend.

The three crow's pattern forms as follows:

1. It consists of three consecutive bearish or bullish candlesticks.

2. The bodies of the second and the third candlestick should be approximately the same size – if the third candlestick is visibly smaller than the preceding two candles, this means that the sellers or buyers are not completely in control and may indicate weakness among the sellers or buyers.

3. They have small or no lower or Upper wicks.

A three crows reversal pattern indicates a shift in power from the buyers to the sellers or sellers to buyers.

Nifty 50 Index Weekly Chart

The weekly analysis is showing that it has eaten up three weeks' bullish trend in a single previous week itself. This week's weekly candle closed near the above part of the 50 Simple Moving Average trend line. And the break of 50 SMA, means, the index will breach the low of Budget Day.

Nifty 50 Index Daily Chart

In the last seven trading sessions, the headline index is not able to cross its previous high of 18134.75, which shows an increment of weakness in the major index and it also indicates the trend is increasing in broad-based selling.

Outlook for Coming Week starts from 27th Feb-2023

The global trade setup remains weak;

US Dollar Index has shown renewed strength and this may not play out well for commodities and metal stocks.

It was the third week in a row that the NIFTY has resisted the 20-Week Moving Average, but this time it finally broke down from there.

This makes the 20-Week Moving Average which is placed at 17988 a formidable and most immediate resistance point for NIFTY in the short term.

The NIFTY is very close to the 50-Week Moving Average; this is placed at 17339, and it is expected to act as a support on a closing basis for the Index.

As of now, the most likely trading range for the NIFTY would be 17300-18000 levels; any violation of 17300 levels will invite incremental weakness for the markets.

Expectations from the week

A short-term bullish rally is expected; but as we know that it would be preferred to sell on the rise or one can buy positional PUT to hedge their portfolio according to their beta valuations

The three soldiers and three crows pattern provide very strong signals, however, we should bear the following in mind:

Overextended bodies:

An overextended body within the pattern might mean that the price has advanced too quickly and the market could be overbought or oversold. You should take care when considering a trade based on this.

Caution with wicks:

Do not seek perfect Marubozu candlesticks (a candlestick that only has a body and no wicks) within these patterns as they rarely occur. However, if the wick of any of the candlesticks forming the pattern (especially the second and the third candles) is equal to or longer than one of the bodies, then caution is advised when perceiving it as a three soldiers or three crows pattern.

In Short, do not jump to be super bullish, if you think the technicals are supporting of reversal of the trend.

Support Level for the Coming Week: We can see the support coming from the level of 17300 and it breaks decisively, then 17210 could be the next support for the week.

Resistance Level for the Coming Week: We can see the resistance level could be 17600. If it can be broken up, only then we can see the level of 17780

INDIA VIX: The India VIX is called a volatility barometer, which has been trading near its lowest levels in recent times. It is up a little bit from the 13.09 level to 14.18.

The Put/call ratio is at 0.79 and FIIs started the March series with 82 percent short positions, both of which point to an oversold market if we look at the derivative data.

The previous two times, in July-2022 and October 2022, FIIs began new series with such substantial short positions that the Nifty experienced rallies of about 1,000 points. This data represents hope for the bulls

Thanks for reading.

Keep Trading

Stay Invested


Neeraj Bhatia (Managing Director)

Disclaimer: I am not a SEBI Registered technical Analyst, so consult your financial advisor, before taking any trade. This technical post is only for learning purposes.

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