Aggressive selling seen in bearish reversal candle
On Monday, a long red bearish engulfing pattern was completed that reflects aggressive selling. Once there is one day of aggressive selling, there is a chance of a second or third day. Last week’s high of 2,721 (C) formed a lower swing low. Since that is half of the definition of a downtrend, this increases the chance of a deeper correction.
And the past three days do little to counter that perspective. Resistance has been seen at the lower trend channel line or at the 20-day MA for the past three days. This is bearish behavior as it follows a second collapse of an ascending parallel trend channel that was activated on Monday. Note that the near-term bearish outlook could change if there is a sustained rally above Wednesday’s high of 2,658.
Bearish continuation below 2,605
A bearish signal will be given on a decline below today’s low at 2,621 and further on a decline below this week’s low of 2,605. The price level at the 2,605 is critical as a decline below will trigger a continuation of the bear trend from Monday’s high. It is part of the second leg down (CD) of a falling ABCD pattern (purple). Previous support around 2,600 would probably make way for lower prices.
The previous swing low of 2,537 (B) would then be the next lower price target zone. However, a continuation of the ABCD pattern, which seems likely, points to possible support around 2,470. That’s part of a confluence zone from 2,484 to 2,470. Several indicators point to the same relatively tight price range, and this includes potential support from an upward trendline and a lower descending channel line.
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