Nifty trend for Thursday

“Short term volatility is greatest at turning points and diminishes as a trend becomes established”- George Soros.

This is a very apt statement for the current market situation. Nifty opened Wednesday’s session with full enthusiasm on the back of cheerful cues from the global markets and within no time, it logged a fresh all-time high of 13,145.85. However, at the same time, the volatility was rearing its ugly head as India VIX was moving ahead with giant steps and as a result the markets witnessed one of its brutal falls after October 15 as Nifty fell almost 300 points from the day’s high and closed lower by 1.5 per cent.

Such harsh was the fall that only 7 stocks of Nifty 50 ended in green and in Bank Nifty, only 4 of its components ended in the green.

Since the price witnessed an astonishing fall from the day’s high, the price action formed a big bearish engulfing pattern. The formation of this pattern at the top of an uptrend is usually considered to be a bearish reversal pattern. With the formation of a bearish engulfing pattern and index closing below the prior low, the flat base pattern breakout, which was seen in the prior session can be categorised as a failed breakout.

Interestingly, since March low, this is not the first instance where a swing high is made with a bearish engulfing pattern. There have been multiple occasions, where a bearish engulfing pattern has emerged at a swing high and also, where the opening is at a higher level and closing at a lower level. In two of the three instances, where the bearish engulfing pattern was formed at a swing high, the price formed did not breach the low in the following session as it formed an inside bar and witnessed a pullback trade. So, if we go by the theory that history is likely to repeat itself then, we might again see Nifty forming an inside bar and not breaching its bearish engulfing pattern low. However, Thursday being the November series expiry day, anything is possible.  

Immediate support for the index is placed at 12,820 and breach of this would open gates for a further correction towards 12,700 levels. On the upside, the level of 12,940-12,970 is likely to act as a stiff resistance.

The rollovers, one day before the expiry, are interestingly poised as Nifty rollover stands at 63 per cent and Bank Nifty rollovers stand at 57.42. The roll cost for Nifty is at 30.2 and Bank Nifty is at 30.1.

All-in-all, we are in for an interesting expiry day. Keep a watch at 12,820 levels and choose your stop-losses wisely as volatility can knock your trades on both sides.