Bajaj Finserv forms dark cloud cover pattern; indicates a possible trend reversal

On the last week of May 2020, the stock of Bajaj Finserv had formed a hammer candlestick pattern and thereafter, marked the sequence of higher tops & higher bottoms. Recently, the stock has formed a bullish engulfing candlestick pattern near the 20-day EMA level and witnessed a sharp upward move. It has gained nearly 22 per cent in just 23 trading sessions.     

However, on Wednesday, the stock had formed a dark cloud cover candlestick pattern, which is a bearish sign. The dark cloud cover is a bearish reversal candlestick pattern, which usually occurs when a bearish candle on the second day closes below the middle of the first day’s candle. The rejection of the gap-up is a bearish sign in itself but the retracement into the gains of the previous day's upmove adds even a more bearish sentiment.   

Talking about the momentum indicators, the 14-period daily RSI cooled off after touching the zones of 80-85 and at present, it is quoting at 72.21. The RSI is trading below its nine-day average, and it is in a falling mode, which indicates a further downside momentum. The daily stochastic has also given a bearish crossover.       

Moreover, there has been a negative divergence between the daily stochastic and the stock price movement, which suggests a limited upside. A negative divergence occurs when the price is making a higher high, while the indicators form a lower high.    

Going ahead, if the stock slips below Wednesday’s session low of Rs 15,850 and trades convincingly below this level, then there is a high probability that Wednesday’s high point of Rs 16,799 would become a temporary top for the stock.     

On Wednesday, the stock of Bajaj Finserv dipped 3.39 per cent and closed at Rs 15,904.40 per share. The stock opened at Rs 16,545 per share and hit an intraday high of Rs 16,799 and an intraday low of Rs 15,850 per share on NSE.