Banking Sector was on a dream run since February and out-performer amongst them were PSU Banks. State Bank of India (SBIN) which has weight age of 9.48% on Nifty Bank had always be a lender of last resorts for longs in this dream run since February but now it may not be the last resort for Bulls as its about to give a bearish reversal signal confirmation on daily charts and the pattern is one of the most successful patterns on Indian charts i.e., Head and Shoulder pattern! As marked in attached graph, we could see a that we have closed today exactly near to Neckline around 251.50 and sell-off could be triggered tomorrow below the line. Now let me explain you pattern a little bit:
Volume plays crucial role on Head shoulder patterns during falling sessions.
- First, Left shoulder downfall (marked light blue) has diminishing volumes then the rise on left shoulder. Traders thought process is such that this is just a profit booking of previous rally so we dont see major volumes during downfall.
- Secondly, Head has rising volumes on the rise but the top followed by a profit booking has highest volumes and we could notice that in the box markets Yellow in the graph.
- Third and most import part of the patter is Right shoulder and it has volume more than the recent averages specially on the breakout days. So we consider previous two sessions excluding today, we have got volumes more than last 5 days Average as marked by green line.
What should we look out tomorrow for confirmation of reversal?
- A Close below the neckline which is approximately at 251.50
- If Volume is greater than 13.1 Mln shares which is 5 day average
- a Gap down with above two points would give a better confirmation
So the pattern seems to be intact until now but nothing can be said until tomorrow’s close but smart traders should pick up the call before the close tomorrow as i mentioned above.
Now if we take some other factors in consideration then 250 PE is also strong support indicated by Options for this expiry which is coinciding with Neckline level. This would surely trigger strong long unwinding below 250 mark tomorrow,. Secondly, even if u look at Nifty bank stocks, SBI is the only stock of top 5 weight-age which hasnt triggered sell-off yet in last 3 sessions. So after, Yes Bank, Indusind Bank, Axis bank, ICICIBANk, can it be SBI? …We would get the answer tomorrow..
Sell SBI tomorrow below 251.50 with stop loss of 261 and target of 227 on positional basis…Safe traders can wait a day close confirmation….Cheers!!