Had written last week regarding the probable decline in Nifty after an Evening Doji Star candlestick formation. Please check my mail below or our website link:
Also want to highlight the divergence between Indian equities and other global equity indices. Check the website link:
In my article dated 8 February (the first website link above), my target for Nifty was 10600-10700. Today, my target was met as Nifty touched a low of 10620 intra-day. It rallied handsomely during the second half of the trading session and closed at 10724 (more than 100 points above the low). After five consecutive negative days, such an intra-day rally gives bullish undertones. On the daily candlestick chart, a Hammer# is formed. Following a downtrend of 500 points, such a candlestick formation indicates a trend reversal. Moreover, an upward moving trendline (pink line), connecting the previous lows, comes around 10700 – suggesting a trendline support at the current trading region.
The trend divergence between Nifty and the other global indices (Nifty has declined while the other indices have posted handsome gains) will not continue (highlighted in the second website link above). Such a significant divergence is usually not sustainable.
My sense is a short term recovery in the Nifty – towards the previous peak around 11000-11100. Will put a stop to this view if Nifty declines below 10600 and forms a new low.
# Hammer: it is a single day candlestick which has a long lower shadow and a short body at the top of the candlestick with little or no upper shadow. In an ‘hammer’, the lower shadow must be two times greater than the size of the body of the candlestick, and the body of the candle must be at the upper end of the trading range. The candlestick looks like a hammer.
A hammer formed in a downtrend is a sign of a potential reversal in the market.