Chart Reading: Diamond pattern suggests upside for Nifty50 and BSE Sensex

On Friday, the S&P BSE Sensex dropped 96 points, or 0.27 per cent to close at 36,009 while the Nifty50 index fell 26 points or 0.25 per cent to end at 10,794. On the weekly scale, both the indices closed in the positive territory. The 30-share index Sensex closed 0.88 per cent higher with a green candle. Nifty settled 0.62 per cent up with a 'doji' formation on the chart. 

Nifty50  & BSE Sensex

Currently, the indices have formed 'Diamond' pattern on the chart. The pattern is similar to Head and Shoulder, emerging at the top of the rally, which indicates trend reversal.  It rarely happens at the bottom of the trend; however, when it does, it signals a big upside rally is in the offing. At the end of the formation, we see higher lows and lower highs as seen in the charts.

Nifty50: The breakout of the said formation materialises when the index crosses higher right trendline of the pattern. The major follow-up buying starts emerging above the peak of the diamond which is placed at 10,985 level. The support of the formation appears to be at the low of the last candle of the diamond - a candle before the merger of two trendlines, which is currently located at 10,739, as per chart. The positive breakout may lead to 11,400 and then 11,600 levels. 

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BSE Sensex: The same logic applies here, too. The breakout looks certain above the higher right trendline with a support of 35,840 level - the candle before the two trendline converges, chart suggests. The volumes seem to be average at the current juncture; however, once the neckline is crossed, buying is set to emerge as per the daily chart. The positive breakout may lead to 38,000 and 38,400 levels.