Bank Nifty forms dark cloud cover pattern; indicates further selling

The banking benchmark index, Bank Nifty has witnessed a blistering start of the week as it opened above the psychological mark of 25,000 level. However, the celebration for the bulls was short-lived as soon after this, the index fell like a pack of cards. At the end of the day, Bank Nifty closed with a loss of 769.45 points or 3.14 per cent.

The price action has formed a dark cloud cover candlestick pattern on the daily scale. 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.

This bearish formation has come along with a rise in the daily range. Monday’s trading range was about 1,847.30 points whereas; the 10-day average daily range is 408 points. The index has also managed to close below its weekly pivot.

Talking about indicators, the 14-period daily RSI cooled-off after touching the zone of 75 and at present, its reading is 63.27. The RSI is trading below its 9-day average and is in a declining mode, which indicates a further downside momentum. The daily stochastic oscillator has also given a bearish crossover in the overbought zone.

Moreover, Ichimoku chart on the 30-minute timeframe is clearly giving a negative view, as it closed below the KS and TS lines. Another important aspect is that the KS line crossed under the TS line, which is also a bearish sign.

Going ahead, if the index sustains below Monday’s session low of 23,385.30 and trades convincingly below this level then, there is a high probability that Monday’s high point of 25,232.60 may become a temporary top for the index.

The derivatives data suggest that among Bank Nifty Calls, the 25,000 strike price is the most active call for September 03, 2020, weekly expiry. Among Bank Nifty puts, 23,500 strike price is the most active put for September 03, 2020, weekly expiry. For September 03, 2020, weekly expiry, an open interest wise put-call ratio (PCR) is at 0.65 and for September monthly series, PCR is at 0.98.

For September 03, 2020, weekly expiry, the highest call open interest is at 25,500 strike with 10,40,900 OI. On the put side, 22,000 strike has 6,84,700 open interest, which is the highest. For September 03, 2020, weekly expiry, the total call open interest is 89,83,800 and the put open interest is 57,97,600. For September monthly series, the highest call open interest is at 24,500 strikes with 4,94,425 OI. On the put side, the highest put open interest is at 23,000 strikes with 5,53,950 OI. The current derivative data suggest that the Max Pain is at 23,500 for the monthly expiry.