Bulls dominate despite year-end volatility, caution signals emerge in Bank Nifty

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Bank Nifty’s evening star, a reversal pattern, looks more pronounced than that of Nifty, which is closer to the interim target of 21860 that we had pencilled in midweek.

An angry upclose in the last week of 2023, served to snuff out what little hopes the bears had after the sharp fall of 20th December. We had gone into last week assuming that the shortened nature of the week and festive mood could take some momentum off the uptrend, but bulls made merry with carefree abandon, pushing stocks and indices higher and higher day after day, ridiculing the overbought conditions that have been prevailing some time. 

Perhaps the fall of 20th December served to ease some of such worries regarding overbought conditions, but this is a classic case of bull market extension that we have been seeing lately. Several attempts intraday, on many of these days, to stretch lower have found quick buying interest, discouraging analysts to approach reversal signs with lesser conviction. Yet, Friday’s soft close and the candlestick formation thereof should not be ignored though.

Bank Nifty’s evening star, a reversal pattern, looks more pronounced than that of Nifty, which is closer to the interim target of 21860 that we had pencilled in midweek. If the bulls choose to ride on the momentum, we could stretch as far as 22400, but we feel that a turn lower or sideways move is highly likely given how pronounced the negative divergence is on the directional moving indicator. 

That we are about 8.5% above the 100 DMA supports this construct, as the last time we were more than 10% above this benchmark, which was in late July 2023, a three month consolidation followed. We will use 21730 as a pivot to go with this construct next week. We would prefer to place our downside marker at the base of last week’s bull candle, at 47806.

Meanwhile, Bank Nifty’s evening star looks too adjacent to serve as a reversal pattern, but does point to exhaustion, which should add up, if we see vulnerability signals again as the index moves up to fibo projection levels of either 49090 or 50000. Among sectors, PSU banks, FMCG and metals look more relaxed to take the baton from the bulls, should upside momentum continue to persist.

First published in Financial Express

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