847 of 3,147 stocks on NSE formed Bearish Marubozu pattern; what it means?

Apart from Nifty, 1 in every 4 stocks traded on NSE on Sept 4 recorded the day's high at open, and closed near the day's low; thus forming a 'Bearish Marubozu' candlestick pattern on the daily chart.

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The GST 2.0-trigggered rally fizzled out on Thursday, with benchmark indices and stocks paring gains or ending near the lows of the day as analysts believed that much of the positives from the lower GST rates were already factored in by the market.  However, one of the most striking feature of yesterday's market action was that apart from the benchmark indices - the BSE Sensex and the NSE Nifty - which opened at the day's high, meaning the day's open and high was same on September 4 - there were as many as 847 stocks out of 3,147 traded on the NSE which met the similar fate.  FOLLOW STOCK MARKET UPDATES TODAY LIVE  This means that roughly 1 in every 4 stocks traded on NSE on Thursday, opened at the day's high, and then went on to pare gains or drop into the negative zone. More than 50 per cent or 531 out of these 847 stocks ended near the lows of the day - thus forming the 'Bearish Marubozu' candlestick pattern on the charts.  "The Bearish Marubozu is a single candlestick pattern that signals early signs of bullish rejection. The candle itself tells a strong story - sellers dominated the market throughout the session, pushing prices lower right from the open and closing at the day's low", explains Kunal Kamble, Sr. Technical Research Analyst at Bonanza. 

What is Bearish Marubozu, and what does it imply?

  A Bearish Marubozu pattern signifies strong control of sellers in the market. The entire body of the candle is either red of black, with no upper or lower shadows as can be seen in the Nifty chart below. 

 

  This particular candlestick pattern, if appears after an uptrend, tends to signal a potential reversal in trend towards a bearish sentiment. And if it appears in an on-going downtrend, it implies likely continuation of a downtrend. In both cases, the interpretation weighs in favour of traders looking for selling opportunities.  Kunal cautions that it is generally better to wait for volume confirmation in the same direction the next day to validate the move.  Ajit Mishra, Senior Vice President of Research at Religare Broking explains that the 'Bearish Marubozu' pattern can weigh on the market sentiment for a brief period; with stocks or indices witnessing such a pattern likely to trade sideways or consolidate in the near-term.  ALSO READ | GST rate rejig above expectation, stocks price in most positives: Analysts 

Prominent stocks with Bearish Marubozu pattern

  The 847 stocks from the overall market included 79 stocks from the Nifty index with Bearish Marubozu pattern. Prominent among these were insurance-related stocks - Star Health and Allied Insurance Company, ICICI Prudential Life Insurance Company, HDFC Life Insurance Company, Max Financial Services, SBI Life Insurance and Life Insurance Corporation of India.  Other notable stocks were - Maruti Suzuki India, Hindustan Unilever, Bharat Forge, Crompton Greaves Consumer Electricals, Bharat Electronics, Vedanta, BPCL, Marico, TVS Motor Company, Aurobindo Pharma, Infosys, Cipla, Hindustan Aeronautics and Sun Pharmaceuticals.  "The fact that 847 stocks formed a Bearish Marubozu indicates aggressive selling pressure across the board. If sellers continue to dominate in today's (Friday's) market, especially with increased volume, it would confirm a shift in sentiment toward a negative bias, and could be a signal to start exiting long positions" said Kunal Kamble.  ALSO READ | Nifty up 200 pts on GST boost; time to sell the rally? What charts suggest  Nearly 25 per cent of the market experienced this bearish pressure. This is significant and suggests a cautious approach going forward. It would be prudent not to enter aggressive long positions at current levels and instead wait for proper confirmation before taking new trades, Kunal Kamble adds.  Meanwhile on the bourses, 24 out of the Nifty 500 stocks ended more than 5 per cent lower from the day's high on Thursday. Escorts Kubota was the top loser - down over 13 per cent. It was followed by Niva Bupa Health Insurance Company, Campus Activewear and Star Health and Allied Insurance Company - each of them down over 10 per cent from their day's opening.