The Nifty50 formed a bearish outside candle on Tuesday after failing to sustain gains near the May 11 gap-down zone, signalling caution for the start of the June derivatives series.
After opening lower, the index recovered and touched an intraday high of 24,089.80 before witnessing selling pressure near the lower end of the May 11 gap zone. The index later erased more than 150 points from the day's high and closed below the previous session's low.
The session coincided with monthly derivatives expiry, which added to volatility. For the May series, the Nifty ended down 0.34%, reflecting a volatile but range-bound month.
The formation of a bearish outside candle comes at a key technical level and raises questions over whether the index can absorb selling pressure near the gap zone and extend its recent breakout, or whether weakness could continue into the June series.
Resistance Zone
An outside candle forms when the day's high moves above the previous session's high and the low falls below the previous session's low. The pattern signals higher volatility. A red candle with a long upper shadow indicates selling pressure at higher levels.
Heavyweights including HDFC Bank, ICICI Bank, Bharti Airtel and Reliance Industries dragged the index lower. Trading volumes also rose above the previous five-session average. With the Nifty declining 0.49% on higher volume, the session qualified as a distribution day.
Despite the decline, the index continues to trade above its 20-day moving average, placed near 23,867. The level also coincides with the breakout zone from the trading range seen between May 12 and May 22.
Key Levels
The 23,800-23,870 zone remains the immediate support area for the index. As long as the Nifty holds above this band, the recent breakout structure remains intact.
On the hourly chart, the index is still trading above the moving average ribbon, indicating that the short-term structure has not broken. However, Tuesday's close below the previous day's low and the long upper shadow suggest that the May 11 gap-down zone remains a hurdle.
Market breadth remained negative, although index breadth was relatively better. The MACD continued to remain in bullish territory, while the 14-period daily RSI cooled from Monday's levels, indicating some loss of momentum.
A move below the 23,800-23,870 support band could pull the index towards its 50-day moving average near 23,683. On the upside, 24,000 remains the first resistance, followed by the upper end of the May 11 gap-down zone. A decisive close above that gap zone could improve the short-term setup.
Stock Watch
Kingfa Science & Technology (India) has rallied nearly 39% from its March lows to the high recorded on May 11 before entering a consolidation phase marked by converging trendlines. Lower volumes during the consolidation indicated a pause in momentum rather than weakness, leading to the formation of a pennant-like pattern.
A pennant is generally considered a continuation pattern that forms after a strong rally and reflects temporary consolidation before the next directional move. The stock broke out of the pattern on Tuesday with a sharp rise in volume compared with its 10-day and 30-day averages.
The stock is trading near record high levels and remains above its 20-day, 50-day, 100-day and 200-day moving averages. The moving averages are also trending higher in sequence, indicating a firm trend.
Momentum indicators remain supportive. The 14-period daily RSI has moved into bullish territory and continues to rise, while the MACD is close to a bullish crossover. The stock could move towards Rs 5,800-Rs 5,950, with a stop-loss near Rs 5,220.
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