Markets had been pretty range bound since the UP election results were out in mid-march, but finally we gave a breakout today and closed at new life highs. Who has led the breakout? Banking Sector! So lets talk about Nifty bank in my today’s post.
As we all could notice in the Daily chart of Nifty Bank, we are about to give a breakout from a Channel. This was a long channel with a time wise stretch of almost 3 months starting from Early February which is on the edge of rally breakout tomorrow over 22140 on spot level. Banking stock has been in good momentum since last 3 weeks but who could lead breakout in Nifty Bank? PSU Banks……………..!
On MoM rally which we got on nifty bank from almost 16000-22000 was lead by private sector banks like Indus Ind, Yes Bank, HDFCBANK, Kotak bank and just one PSU Bank SBI. Other Mid-cap and PSU Banks were lagging rally due to NPA concerns. But as we have already seen banks following Swacch Bharat on their NPA’s, we are getting attractive deal on Risk: Reward for long term on such banks. I Had been pretty much avoiding trades in such banks but now i would surely keep them in my watch list for trading purpose.
Lets check out PSU Bank Index
So when we are witnessing Niftybank closing above its own high of 2015 , PSU bank index is still far away from 2015 high and then we could think of it catching up with its own private peers. As we all could notice in weekly chart of PSU Bank index, we have almost witnessed a inverted h&S bullish reversal pattern. This clear suggest that we are going to get some good medium term trends from PSU Bank stocks. The index is expected to kiss 4800 from current levels of 3540 from pattern breakout. So any dip in quality PSU bank stocks is a buying opportunity for 6 months.
Strategy: Buy stocks like Bank baroda, SBI, Andrabank and mid-cap bank like federal bank for a 6 months time with stop loss on PSU Index at 3270
Nifty Bank has seen sharp short covering after under performing in the month of December. Prior to December it had out-performed ..So during this Rock-n-Roll one level which acted a pivot was 19068 as marked horizontal in the graph over which Bull’s will get control over the markets.
So as we could all mark that since last July, 19068 level has played role of resistance-Support and now we are again approaching the same. But this time its more crucial resistance because we also have 100 day SMA at the same level. From the Derivative markets also we have got highest open interest at 19000 mark which may be a small resistance. Even a dragon fly Doji on daily chart suggest that bulls got back control at the end of the day. Even indicators are showing strong positive momentum which is giving me more confidence of probable breakout over 19068.
Now getting to Wave Theory, we have started a Wave B corrective move against a larger corrective Wave. Looking at a primary level, i conclude that we may get a Flat formation to larger wave which means this rally has all chances to kiss 20000 mark soon. Even post 19000 we have all resistances around 20000 which means 70 points move away from close today would trigger fresh buys for traders. Investors should still remain stock specific in Bank Sector as still many PSU’s are announcing willful defaulter which may have strong impact on profits in coming quarters. So Strategy would be simple to go long on Nifty bank with Stop loss of 18600 targets 19450/19960.
In recent past, Nifty has been quite volatile but Nifty Bank Index has shown some steady growth from 18900 to 19700 levels. One common characteristic of charts of both nifty and nifty bank is that both are channeling in downside direction and have closed exactly near to resistance line yesterday. Now what next?? Surely havent yet got any confirmation for more upside on Nifty but a slight more upside could be witnessed on Nifty bank charts. As per my Wave counting, we are still into a corrective Wave but we can witness a reaction move in upside direction and Nifty Bank could outperform during this reaction as its about to move out of the channel
As we even look at some other factors, say Indicators, they have also given a positive crossover from the oversold zone indicating a short covering. Secondly, Nifty bank has taken strong support on 50 day average giving a sense of bulls momentum for near future. Thirdly, Option writing is suggesting resistance this expiry around 20000! But traders should take position in next expiry with target of 20233 in mind where probability of Wave B ending is expected!
Safe Traders: “No Trade until Clear sign”
Risk Traders: Buy with tgt 20230 SL: 19450
Rd disclaimer before investing on my view!
Banks Tanked like hell last week and i hope you guys earned full of it as i intimated the same on 23rd Sept in my post: Banks are About to Tank! Though my downside target 19200 was achieved easily but thats not the end of downside rather its just the beginning. Nifty Bank breached a upside channel on weekly charts which was intact since february low and we have closed below the same today giving a strong confirmation to previous two Gravestone Doji. Surely looking at above charts we will get biased towards getting our shorts on cards but before than i feel we would get a short covering on daily charts. Looking at indicators on daily chart, banks are too oversold and it should get some upside before going down more. Banking policy next tuesday is expected to give rate cut and much need short covering markets but that could only sustain temporarily as i feel this cut is already discounted since long.
So may be we could see some positive moment if we get rate cut better than expected but then strategy would be Sell on News rather than buying fresh. On upside 19750 is strong resistance for short term while 19900 would be my next level to short.
Buy 19350 CE Nifty bank with tgts of 19650/19850 SL: 19100
Markets had been quite volatile this week on various statement awaiting from BoJ and FED but still Index charts are looking weak as i explained in my last post on Nifty. Though we have seen strong stock specific buying in Mid-cap sector and some front-line stocks too but the main pillar of Indian markets, Nifty bank (Bank Stocks), have started showing signs of under-performance in coming weeks. We saw trigger first from Yes Bank, followed by Indus ind bank to some extent and the main culprit born this week was Axis Bank. Looking onto PSU Banks , if you look at SBI counter, it has been resisting strong at 260 CE were we are witnessing strong writing. So overall Stock specific banking stocks are looking weak. Even if you look at Nifty bank options, we have been witnessing strong writing at 20000CE but on the downside writing for this expiry is still at 19500 PE which gives me strong feeling we could get that next week with furious fall. Coming to chart below, its weekly chart of nifty bank.
If we look at the channel which was intact since the low on Budget day, we are closing near to downside support line of channel for almost 6th time but this time is fearful! Why? …We have got 3 bearish candles for last 3 week…Inverted hammer …Gravestone Doji…..Gravestone Doji….!! So if we trade below 19760 spot level next week, it could be Trend Reversal for medium term…indicators are already turning bearish….So i would be recommending sell on rise on Nifty bank…with stop loss at 20300 …Target …19200!!!
Nifty banks has given tremendous run in recent time and has out-performed Nifty in last two expiry. Stock specific movement in banks had led this divergence. To take some names, PSU Banks gave a strong short covering on weekly charts after two years of under-performance until Budget day this February. Still many PSU Banks are showing signs of a good move next week but Nifty Bank index is approaching channel resistance near to 20100 spot level. So may be those who had longed this expiry could profits around 20050 while start fresh shorts above 20100. Options data is suggesting strong resistance as of now around 20100 levels.
Strategy for Next week: Book Longs near 20050 and Sell on rise above 20100 with Stop loss of 20250 for rest of expiry
Nifty has been quite volatile these days and it has almost achieved my target of 8720 before 2 days but now we are not getting any clear sign of trade on either side. But Nifty Banks index is showing some pattern on daily chart which is an upward slopping channel as marked in chart. But currently we are into ebbs of major trend wave which means we are into some profit booking. Stock specific trades in banking are still looking good but index may weaken to lower channel support which comes around 18150. May be its risky to have a naked position so may be i would buy a 18600 CE and 18500 PE and stay safe until expiry. So next two sessions remain crucial for stock market but would recommend to have a safe strategy to traders
Finally today both the averages, Nifty and Nifty Bank, have converged at on charts! Until yesterday Nifty bank was under-performing Nifty by almost 1% but that gap has been filled up today where Nifty bank out-performed Nifty with almost that same lagging difference. Indicators are yet showing some strength for the bulls on weekly charts but today markets closed near strong resistance on the channel line.
Nifty Close near resistance line at 8525
Nifty bank closed near channel resistance of 18685
Though it doesnt mean that markets would fall from here but surely a big move is coming either way from tomorrow. Looking at the IIP and CPI just released, it seem we shall see some more movement upside but 8577 is strong resistance for Nifty where its recommended to book partial profits while above the same we may see 8700 levels. For Nifty Bank 18700 is strong resistance while above the same we can get 18950. Indicators are already overbought but looking at derivative data we may see some more positive movements. Though for traders i would always recommend stock specific trading rather than Index specific.
Nifty bank has been a under-performer in last two weeks compared to Nifty Index. But now looking the pattern on Nifty Bank daily chart is moving in a strong up channel and is appearing Upper resistance line while Nifty has already reached that trend line on similar pattern today.
Nifty Chart appearing resistance line of upside channel
Nifty Bank index appearing channel line
Technically, indicators have also given internal signal line crossovers to show still valid momentum for the upside on Banking Stocks and Index. News from offical sources say that Government may soon infuse capital in PSU Banks which could fuel rally in the index. Though going fresh longs at CMP would be bit difficult as Risk:Reward Ratio aint favorable but those who have a long position can hold with the targets of 18700 on the Bank index. While for a trailing SL can be at 17930.
Banking stocks have given a good rally from the budget low and specially PSU banks, but now since last 3 sessions we are losing some strength in the stocks. Some Private sector banks are trading at 52 week high which posted strong results for the last quarter. PSU banks are the cause of weakening because they are posting worst than expected results. This could be clearly seen in Nifty Bank index chart that too the monthly which is attested in the post. Index Trade is on the channel Bank on other side of which we could see a long term breakout but it seems lil difficult looking at the momentum in short term. Adding open interest Data , i feel 16000 as the bottom while 17000 is the resistance which is also the channel resistance. technically support is seen at Red line which is at 15790. So this week trading is crucial for banking stock.
Recommended Strategy on Index: Buy Around 15790 or above 16800 which is early. Stop loss would be 15500 and 16500 respectively.