The global equity markets are flashing strong bearish signals after a week marked by significant sell-offs. The DJIA weekly chart has formed a bearish engulfing candle, following an all-time high the previous week. This ominous pattern not only represents a sell signal but also indicates a buy failure, negating the breakout above resistance seen earlier. Similarly, the S&P 500 (SPX) has formed a large red candle at a double top, suggesting further downside risk.
Fig 1 - Weekly Chart of DJIA showing a Bearish Engulfing candle after a Buy Failure
Fig 2 - Weekly Chart of SPX showing a Bearish Engulfing candle at a Double Top
In line with global trends, Indian markets have broken down sharply. The Nifty has formed a bearish engulfing candle on the weekly chart after hitting a fresh all-time high, signaling a potential reversal. The daily chart indicates a broadening pattern after breaking below support last Friday, with the next key support level around 24,400, nearly 450 points from Friday’s close.
Fig 3 - Weekly Chart of Nifty showing a Bearish Engulfing candle after a fresh ATH
Fig 4 - Daily Chart of Nifty showing a breakdown below support on Friday.
The BankNifty also saw significant declines, engulfing two weeks of candles in a single session. Meanwhile, the CNX IT index is teetering near support, with a sell signal already generated on the daily chart, suggesting further downside is likely.
Fig 5 - Weekly Chart of BankNifty showing a Bearish Engulfing candle for last week
Fig 5 - Daily Chart of CNX IT showing a Rising Triple Top Sell Signal on Friday.
Mid-cap stocks have not been spared either, as the MidCap Index has produced a bearish engulfing candle at a double top, further reinforcing the bearish outlook for the week ahead.
European markets, including the FTSE, CAC, and DAX, have followed suit, with all three indices forming long red candles that engulf several weeks of prior gains, adding to the global market's precarious positioning.
This widespread market weakness is unfolding just ahead of the much-anticipated Fed rate cut in September, an event typically seen as bullish. The sharp downturn across global indices raises the question: Does the market know something we don’t?
With multiple indices at key technical breakdowns, traders should brace for a potential sharp downside move in the coming week. The confluence of bearish signals across global markets suggests that risk-off sentiment is firmly in control.
Please scroll down to the bottom of this post to subscribe to the mailing list for regular market and trade updates.
Comments