Nifty Bank oscillators screaming overbought at top of their voice: Anand James


1) After the fast paced rally seen in the week, do you predict some consolidation in the week ahead? What are the key levels to watch out for Nifty F&O traders?

Nifty had an enviable run last week, having thwarted multiple attempts by bears and recovering in breathtaking fashion. This run has taken us to the 21k summit, but incidentally, buyers were seen withdrawing post testing this psychological mark. This leads us to suspect that bears have regrouped enough to make a serious dent on the 19850/800 region, and should it give away, a quick drop to 20640/560 would be the first outcome. Additionally, weekly RSI which has been running overbought signs for a while now, has also signalled a negative divergence. In contrast to this surmise, the flat close in the last few days may have helped in cooling down overheated upmoves which had seen 2 standard deviations extremities being consistently breached. Further, VIX, despite appearing positioned towards a sizeable rise, eased off on Friday, indicating that traders slipped into a comfort zone again despite Nifty entering unchartered territories. This leaves window for stretching the upsides to 21130-21220 initially or even 21600, but anything beyond is less likely without a meaningful correction.

2) Do you think that the 2,000+ point rally in Nifty Bank in just 5 days has more steam left after a long round of consolidation? How strong is the resistance above 47,000-mark?
The clean breakaway rallies accompanied with continuation patterns encourage us to look for extension in uptrend aiming 47800-48200. While patterns favour upsides, oscillators are clearly screaming overbought, at the top of their voice. But this is a classic case of bullish phases, but the fact negative divergences are visible in weekly and monthly time frames clearly signals volatility ahead, and cautious against fresh positions, but to let profits run. On the flipside, 47020 may be used as a downside marker, with 46507, the reaction low, seen as the most adjacent support.

3) Power stocks have been the highlight of the week. What are the charts indicating at and which stocks have more steam left?
Friday’s negative close on the BSE power index takes away some sheen off the speculator fashion in which the recent rally has unfolded. The steepness of the rally that has been on since October puts to shade the gains during the Mar-Sep period which was characterised by the steady rise. In contrast the ongoing rally has been largely devoid of continuation patterns. The index is also 37% away from the 200 DMA, and the law of averages is bound to catch up soon. Highlighting this surmise is the near bearish engulfing pattern that Friday closed with, suggesting that a turn lower could be in the making.

4) Tata Power shares rallied around 20%. What would be your trading strategy?
Tata Power’s breakout rally has room for upside till 380 with the ongoing momentum. Oscillators are obviously at overbought levels even in weekly time frame, but they are yet to see any divergences that may lead to break in the rally. That leaves the fate of the present rally with the usual profile of the traders themselves, as the counter has had an uncharacteristic run. The last time the stock had a similar run in April 2022, a 36% correction ensued. This history will be the main challenge for the stock next week, and with that in context, we would be cautious against fresh positions, and would rather let profits run.

4) PSU bank stocks are also having a dream run. Which ones would you bet on at this stage?
Despite the dream run, the PSU bank index stocks are yet to show significant exhaustion. We are positive on this space. Our bets are on SBI, BOI and PNB for the next 30 days.

5) Give us your top trading ideas for the week ahead?

View             :        Buy
Targets         :        840 – 870
Stoploss        :        782

After a few days of pullback, the stock is again attempting a pullback and has formed a Pinbar Doji in daily charts. The momentum indicator MACD has broken above the signal line in the daily timeframe. In the weekly timeframe, the MACD forest has shown signs of exhaustion at lower levels hinting at pullback. We expect the stock to move towards 840 and 870 in the next few weeks. All longs may be protected with stoploss placed below 782.

View             :        Buy
Targets         :        860 – 885
Stoploss        :        805

The stock has been witnessing profit booking since September and has formed a reversal candle pattern in daily charts and bounced off the Fibonacci 38.2% level of the January 2023 low and September 2023 high in weekly time frame. Also, the MACD histogram has seen exhaustion at lower levels hinting at possible reversal in the near term. We expect the stock to move towards 860 and 885 in the next few weeks. All longs may be protected with stoploss placed below 810.

First published in Economic Times


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