Will Friday's gap-down lead to more losses for Sensex, Nifty going ahead?

The 'Island Reversal' pattern formed by Sensex, Nifty, and Nifty PSU Bank index usually indicates a strong reversal in trend

The Indian markets performed in line with peers on Friday amid a global equity market rout, and later extended the fall to over 2 per cent in intra-day trade, with the S&P BSE Sensex sinking over 1,300 points while the Nifty50 tumbled over 350 points.

A rise in commodity prices has fanned inflation risks, pushing bond yields higher. That apart, reports that the United States launched airstrikes in Syria on Thursday, targeting facilities near the Iraqi border further dented global mood. READ MORE

From a technical viewpoint, the kind of gap pattern registered by the Sensex, Nifty, as well as Nifty PSU Bank, on Friday, usually indicates a strong reversal in trend. The formation shows simultaneous gaps which are inverse in nature. Suppose, if the scenario shows a strong up move with a gap-up close reflecting a firm bullish sentiment and later witness a gap-down, the trend is said to have attained “Island Reversal”, with the possibility of a negative reversal and vice versa.

Here's how the three indices look on the charts

S&P BSE SENSEX:  The index opened nearly 600 points down on Friday, indicating a weakness at the beginning of the session. The index extended its losses as the trade progressed. This move emerged after a firm gap-up rally just a session ago. This scenario indicates an “Island reversal” pattern in the gap theory. If the index fails to fill the gap-down range of 50,991 to 50,400 levels, the negative bias is expected to gain momentum in coming days. If this scenario persists, the weakness may see the index drifting towards 48,900 to 48,200 mark. CLICK HERE FOR THE CHART

NIFTY50: After reclaiming the 15,000 mark yesterday, the index opened with a important gap down of over 170 points today. This shows a build-up of negative sentiment as crucial supports are broken. The formation of “Island Reversal” indicates weakness, which is set to increase if the gap down range of 15,065 to 14,919 does not get filled. Under this scenario, further downside towards 14,500 – 14,400 can be expected. CLICK HERE FOR THE CHART
 
NIFTY PSU BANK: This is another index bearing the “Island Reversal” pattern, as per the daily chart. The next crucial closing basis support is at 2,360 levels. A decisive break down below this support may see the index heading towards 2,260 to 2,180 levels. The gap-down rage of 2,487 to 2.446 level needs to be conquered to show reversal in a positive trend, as per the gap theory. CLICK HERE FOR THE CHART