Nifty Technical Outlook: Bullish Trading Positions Are Discouraged

Last week, the NIFY formed a long green candlestick. Long green candlesticks generally indicate there is strong buying pressure; this typically indicates price is bullish. However, they should be looked at in the context of the market structure as opposed to individually. Appearing at a significant support level, they can often be a precursor to a strong bullish reversal. However, when they appear in an uptrend such as the one that we've been in since March, they may point towards an upcoming consolidation or momentum reversal.

The stochastic oscillator is now in the overbought zone both on the weekly and the daily charts, and this confluence typically signals a drop in asset prices.

We're quite likely to see a correction in the bellwether index from these prices - a minimum drop of 200 points appears to be on the cards, with a strong possibility of the NIFTY trending down closer to the 10,500 to 10,600 mark over the next couple of weeks. At that stage, when the index hits the middle Bollinger Band on the weekly chart, the next major trend will be decided. For now, bullish trading positions are discouraged as the risk/reward ratio favours the bears amidst what promises to be a lengthy range bound time correction.