SBI forms bearish engulfing candle

The stock of State Bank of India has formed a reversal ‘three inside up’ candlestick pattern as on the weekend of June 05, 2020, and thereafter, witnessed a pullback rally. The pullback was nearly 55 per cent from the low of Rs 149.45, which was registered on May 22, 2020.

On Monday, the stock has opened the session on a positive note but the opening level of the day was the highest as bulls failed to extend their move and soon, slipped into negative terrain. The price action has formed a bearish engulfing candlestick pattern on the daily scale. This pattern is considered to be a bearish reversal pattern and usually occurs at the top of an uptrend.

Along with this bearish formation, the stock has also managed to close below its weekly pivot. Among the momentum indicators, the 14-period daily RSI cooled-off after touching the zone of 75-77, and at present, its reading is 60.37. 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, there has been a negative divergence between the daily RSI, daily stochastic, and the stock price movement, which is suggesting a limited upside. A negative divergence occurs when the price is making a higher high, while the indicator forms a lower high.

Going ahead, if the stock sustains below Monday’s session low of Rs 210.35 and trades convincingly below this level then, there is a high probability that Monday’s high point of Rs 231.55 may become a temporary top for the stock.

On Monday, the stock of State Bank of India closed at Rs 212 per share, dipped by 5.71 per cent. The stock opened at Rs 231.55 per share and hit an intraday high of Rs 231.55 and a low of Rs 210.35 per share on NSE.