Bank Nifty forms bullish engulfing candle

After registering an all-time high level, the banking benchmark index, Bank Nifty has witnessed correction of almost 3,000 points. The correction is halted near 50-week EMA level and it coincides with 50 per cent Fibonacci retracement level of its prior upward move (26,560.60-32,613.10). However, considering the weekly time frame, the index has formed bullish engulfing candlestick pattern.

The bullish engulfing candlestick pattern is considered to be a bullish reversal pattern and usually occurs at the bottom of a downtrend.

Along with this bullish formation, the index has also managed to close above its weekly pivot and short and long-term moving averages, i.e. 20-day EMA, 50-day EMA, 100-day EMA and 200-day EMA. The leading indicator, 14-period daily RSI is currently quoting at 51.11 and it is still trading in downward channel. RSI bounced sharply from 30 level and now, it is important to sustain above 55-zone to continue the rally. Two trading sessions ago, the MACD line crossed the signal line and the histogram became green.

Going ahead, on the downside, the immediate supports are seen around 30,920-30,893 levels, as it is the confluence of 8-day EMA and 13-day EMA. On the upside, Bank Nifty needs to sustain above the zone of 30,470-30,550 level to maintain its positive stance. If it is unable to surpass this level, then there are chances of the index entering a corrective to sideways phase. 

Derivatives data suggests that among Bank Nifty Calls, the 31,500 strike price is the most active call for February 13, 2020 weekly expiry. Whereas, among Bank Nifty Puts, 31,000 strike price is the most active Put for February 13, 2020 weekly expiry. For the February 13, 2020 weekly series, the maximum Open Interest (OI) outstanding for Calls was at 31,500 strike price and for Puts, it was at 31,000 strike price.