NIFTY Index Chart Analysis NEGATIVE INFLUENCES LOOM LARGE

As was expected, the Nifty tested the zone of 18,78018,880. Since then, the index has entered into a counter trend. Nifty corrected by 2.53 per cent from the lifetime high of 18,887. It exactly tested and traded around the 20 DMA.

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However, it formed a bearish engulfing pattern around the 20 DMA. As it formed after a decent correction, we can expect some more correction because we consider it as a topping formation and a continuation pattern. Since it closed just flat on Monday, the bearish engulfing is still a valid pattern. The index closed below the rising trend line support on Wednesday i.e. December 7 and it sustained below it.

It also traded below the previous lifetime high of 18,604 for the last four days. At the same time, it almost tested the 23.6 per cent retracement level of the prior upswing from the September low.

Interestingly, the November 16 high and November 28 low are in close proximity of each other. On the weekly chart, it formed an inside bar as traded in the previous week's range. The pattern resembles a bearish belt hold, but it's not a perfect textbook bearish belt hold pattern. It snapped two weeks of bullish bias and formed a bearish candle.

Up to 23.6 per cent of 18,382 and the previous week's low of 18,365 will act as crucial support for the next week. On Monday, it violated this important support on intraday basis as it tested the level of 18,345. A decisive decline below this level will take us towards the zone of 18,070 -18,114 where the next strong support is placed, which is the 38.2 per cent retracement level and the previous tight base breakout level. Currently, the Nifty is holding two distribution days.

Any increase of distribution days to five and a decline below the prior swing low of 18,114 will be a clear weak signal.

This is also near the 10-week average level of 18,152. If it declines below the level 18,114, it will breach its swing low.