Is it a failed breakout ?

Well, the enthusiasm of the last few days has washed away in a single day. 11000 was resistance for the last 10 weeks. Normally what happens under these conditions is a shakeout due to some new event (Budget in this case) which will disturb the status quo and then the trend will materialize. After it materializes, the trend can continue OR it can fail. If it fails the movement in the reverse direction will be equally severe.

Nifty has made an Evening Doji Star. Let’s understand it –

Evening Doji Star

A three-day bearish reversal pattern. The uptrend continues with a large white body. The next day opens higher, trades in a small range, then closes at its open (Doji). The next day closes below the midpoint of the body of the first day.

(Source: StockCharts.com)

We have closed below the low of the first-day candle signifying a higher bearish intensity. Price is also reversing from the overbought levels of Full STO and RSI(14).

 

Nifty Daily

 

The Fear Factor: Even though the price has moved beyond trading range the corresponding fall in VIX has not taken out the previous low.

 

VIX & Nifty

 

Trend Momentum: Paused with the fall in prices.

 

ADX

 

Volatility Break: Bands continue to expand.

 

BB Width

 

The Intermediate-term picture:  Something interesting is happening here. The price breakout happened after a 10-week range/resistance above 11000 and it failed to sustain.  The RSI has also repeatedly failed at the 80 levels so far. The Bollinger bands have also narrowed at the upper end > the near term upside is limited even if the failed breakout reverses and prices move up from here.

 

Nifty Weekly

 

To summarize, a bearish bias with 11100 stop loss has better risk/reward potential. 

 

 

Is it a failed breakout ?
Unleash the Ideavirus