Technical Analysis

Bank Nifty makes a U-turn

Yoganand D | Updated on November 25, 2017 Published on August 10, 2014

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After repeatedly testing the 15,600 level, the index reversed direction and moved down



The Bank Nifty and the CNX IT Index moved in opposite directions last week. While the Bank Nifty fell 2.4 per cent over the week to 14,765 levels, the CNX IT Index gained 1.6 per cent and ended the week at 10318 levels.

The CNX IT Index, in fact, rallied 3.8 per cent during the week at 10,544.6 to mark a new high.

The highlight in Bank Nifty’s movement was the 1.5 per cent slump on Friday, in line with the fall in the broader market, due to geopolitical tensions and a weak rupee.

However, the CNX IT Index trended higher, aided by gains in Infosys and Oracle Financial Services Software’s stocks and a weak rupee.

Bank Nifty (14,765.7)

The index has been on an intermediate-term uptrend since early September 2013, taking support around 8,625 levels.

While trending up, the index conclusively breached its key resistance at 13,500 and recorded a new high at 15,742 in mid-May 2014.

Ever since, the index has been on a sideways consolidation phase in the wide band between 14,500 and 15,600.

After repeatedly testing the upper boundary of 15,600 during May and July, the index finally made a clear reversal move down last week.

This reversal is backed by a negative divergence in weekly indicators, namely the relative strength index and the price rate of change.

Last Wednesday, the index fell 1.8 per cent and decisively breached its 21- and 50-day moving averages.

The index is now trading well below these levels. On Friday, it conclusively breached its key immediate support at 15,000 levels. This level has now turned into a key resistance level.

The relative strength index on the daily chart has entered the bearish zone, from the neutral region, implying that the downtrend is gaining strength.

Other indicators such as a moving average convergence divergence and price rate of change have entered negative territory and are signalling bearishness.

The index can extend its fall and test its support at 14,500 in the coming weeks. Subsequent key support is pegged at 14,000 levels.

A conclusive weekly close below this level can take the index down to 13,000 levels in the medium term.

On the upside, the Bank Nifty needs to emphatically rally above 15,300 levels to alter the near-term downtrend and take the index higher to 15,500 and 15,600. Immediate resistance is at 15,000 and support at 14,500.

The intermediate-term uptrend since September last year will be under threat if the index declines below 12,000 levels.

A strong breach of this support will have negative implications and will drag the index down to 11,000 or even to 10,000 in the long-term.

On the other hand, a strong rally beyond 15,600 can take the index higher to 16,000.

CNX IT (10,318.2)

The CNX IT index has been on a long-term uptrend since bottoming out at 5,960 in April 2013.

After a a corrective fall, the index found support around 8,670 and bounced back in May 2014. Since then, the index has been on a medium-term uptrend.

While trending up the CNX IT index decisively breached its moving average compression around 9,200 levels in early June 2014. In late June, the index surpassed a key resistance at 9,600 and continued its journey up, breaching its hurdle at 10,000 and reaching 10,400 levels.

This rally has been in line with our expectations pointed out in this column on June 30. At present, the index is testing significant resistance at 10,400.

The indicators on the daily chart are displaying negative divergence, signalling a short-term trend reversal.

To reinforce its downward reversal, it needs to decisively breach the key support at 9,800 levels. Next supports below 9,800 are pegged at 9,600 and 9,400 levels. On the upside, a strong rally above 10,400 can take the index higher to 10,600 in the medium term.

Published on August 10, 2014
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