Nifty trades in broadening formation, right-angled and ascending pattern

Considering the daily timeframe, Nifty 50, the bellwether equity benchmark, is trading in a broadening formation, right-angled and ascending pattern since last 42 trading sessions. The broadening formation, right-angled and ascending pattern is rare and is considered to be a bearish reversal pattern.

This pattern is formed by two diverging lines; the resistance line is upward sloping and support line is horizontal. Unlike most consolidation patterns, broadening formation features increasingly wide ranges and greater volatility as time passes. This pattern reflects indecisiveness among investors and extreme volatility.

Before coming to a conclusion for an intermediate top, we will try to analyse the strength of the market with the help of Directional Movement Indicator (DMI) and the Average Directional Index (ADX). On the daily chart, the price has been making higher highs and at the same time, the +DMI indicates the direction of the trend, making lower highs. This suggests that the upside momentum is weakening, as witnessed by the divergence in higher high on prices and corresponding lower highs on +DMI. The other indicators like Relative strength Index (RSI) and Commodity Channel Index (CCI) has also supported the same phenomenon.

Considering all above facts, it is better to be cautious on the long side. Any sustainable move below the 12,100 level would be the first sign of weakness and, in any case, Nifty closes below the level of 11,800 this will be resulted in breakdown of broadening formation.