By Dalal Street Investment Journal (DSIJ)
Trade Setup for April 6: The Nifty 50 recovered over 500 points from the day’s low after opening gap-down, forming a bullish counterattack-like pattern. A triple positive RSI divergence is also visible. This is a high-conviction technical setup in which price forms three successive lower lows, while the RSI makes higher lows. Such a rare pattern indicates weakening downside momentum and raises the possibility of a meaningful trend reversal.
The Nifty 50 index opened sharply lower on Thursday, with a gap-down of nearly 300 points. After the weak start, the index extended its losses further and slipped to a fresh swing low of 22,183. However, it witnessed a strong rebound from lower levels, recovering more than 500 points and eventually ending the session with a modest gain of 0.15%. The recovery was largely driven by HDFC Bank, Infosys, and HCL Tech.
This rebound from the day’s low led to the formation of a bullish candle with a long lower shadow, while the opening downside gap was completely filled. On the daily chart, the candlestick pattern resembles a bullish counterattack formation. Despite the sharp recovery, the index registered its sixth consecutive weekly loss. It also continues to trade below key moving averages, including the short-term 8 EMA. Moreover, the broader trend still reflects a sequence of lower highs and lower lows. Taken together, these signals suggest that the index is still not completely out of danger.
On the 14-period daily RSI, a triple positive divergence is visible. This is a high-conviction technical pattern in which price forms three successive lower lows, while the RSI simultaneously makes higher lows. Such a rare setup points to weakening downside momentum and raises the possibility of a meaningful trend reversal. In addition, the lower Bollinger Band is beginning to flatten, which may indicate the early signs of bottom formation. That said, the first key hurdle for bulls is a close above the 8 EMA, which is currently placed at 22,856. A decisive close above this level could pave the way for a further upmove towards 23,200 followed by 23,440-23,465, a zone that coincides with the recent swing high and the 20-DMA.
Overall, Thursday’s recovery from lower levels, combined with the triple positive RSI divergence, offers hope for a further bounce. However, the prevailing pattern of lower highs and lower lows, along with the index trading below important moving averages, continues to keep the broader structure weak. Adding to the caution is the fact that recent technical pullbacks have lasted only one to three days, limiting confidence in a durable recovery. For a sustainable rebound to emerge, the index must first close above the 8 EMA. Any positive development on the US-Iran front could also provide additional support to sentiment.
SEBI Registered Research Analyst (INH000006396).
Founded in 1986, Dalal Street Investment Journal (DSIJ) brings decades of experience in India’s equity markets. DSIJ's research combines fundamental analysis with price action, guided by disciplined risk management and capital preservation. They follow a structured, data-driven approach designed to help investors and traders make informed decisions beyond short-term market noise.
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