Trade setup for 5 June: NIFTY50 confirms bearish reversal hanging man pattern

Asian markets update 7 am

Tracking positive global cues, the GIFT NIFTY is trading higher (+0.4%)- indicating a positive start for the Indian equities today. Asian markets are trading mixed. Japan’s Nikkei is down 1%, while Hong Kong’s Hang Seng index is up 1.3%.

U.S. market update

• Dow Jones: 38,711 (▲0.3%)
• S&P 500: 5,291 (▲0.1%)
• Nasdaq Composite: 16,857 (▲0.1%)

U.S. markets rose on Tuesday after employment data showed that 8 million jobs were added in April, the lowest in over three years and below the 8.4 million forecast. This prompted traders to increase the probability of two interest rate cuts this year to nearly 62%. Wall Street is now eyeing May's Non-Farm Payrolls report, which is due on Friday.

NIFTY50

• June Futures: 21,908 (▼6.1%)
• Open Interest: 5,82,332 (▲1.1%)

The NIFTY50 index started the day on a negative note and drifted 8% lower from its opening price. The weaker-than-expected outcome for the current BJP government in general election resulted in a sharp fall in indices and the NIFTY50 formed a big red candle on the daily chart.

As the index slipped below its 100-day moving average (DMA), the volatility index jumped above 30 on intraday basis resulting in a spike of 30%. However, the NIFTY50 took support around 21,300, closer to its 200-DMA and staged a sharp recovery of over 600 points and protected the crucial swing low of 21,821 on the closing basis.

The experts believe that due to the ongoing uncertainty because of the outcome of general elections the index may witness volatility and closed sharp swings on intraday basis. Traders should remain cautious of sharp spikes and plan the strategies with proper risk management.

BANK NIFTY

• June Futures: 47,088 (▼7.7%)
• Open Interest: 1,64,852 (▲8.6%)

The BANK NIFTY plunged over 4,000 points on Tuesday, down nearly 10% from the opening level, led by a sharp sell-off in the banking sector, especially PSU banks. The BANK NIFTY ended the day below the immediate swing low on the daily chart (46,983), indicating further weakness.

As can be seen on the daily chart, the index has formed a large bearish candlestick and has breached both its 50 and 100 day moving averages (DMAs) on a closing basis. The BANK NIFTY also broke its 200 DMA on an intraday basis, but quickly recovered over 800 points from the day's low.

Looking ahead, until the index is stuck between its 100 and 200 DMAs, we may see a lot of volatility. However, if the index closes below its 200 DMA, we may see further weakness with resistance around 48,000 where the index's 50 DMA is located.

FII-DII activity

Stock scanner

Long build-up: Hero Motocorp, Godrej Consumer Products, Marico and Sun Tv

Short build-up: Bharat Heavy Electicals (BHEL), Punjab National Bank, Coal India, State Bank of India, Power Grid and Larsen & Toubro.

Under F&O ban: Zee Entertainment

In Futures and Options or F&O, long build-up means an increase in Open Interest (OI) along with an increase in price, and short build-up means an increase in Open Interest(OI) along with a decrease in price.

Source: Upstox and NSE.

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