Technical Analysis

Nifty Bank trades above a key base

Yoganand D | Updated on March 01, 2020

The Nifty Bank plunged 1,039 points, or 3.4 per cent, last Friday with a downward gap, decisively breaking below key supports — the 200-day moving average at 30,185 and a significant psychological base at 30,000.

With this fall, the index extended its weekly fall to 1,795 points, or 5.8 per cent.

But the Bank Nifty remained resilient compared with the weekly decline of the bellwether indices — the Sensex and the Nifty — which tumbled 7 per cent each.

Since encountering a key resistance at 32,500 in late December 2019, the index has been in a medium-term downtrend.

While trending down, it had breached a vital support at 31,500 in late January, which turned into a key resistance and capped the upside during mid-February. Moreover, the 50-day moving average acted as a key resistance at around 31,500.

Click here to read: Index Outlook | Where is the floor for Sensex, Nifty 50?

The index has been in a short-term downtrend since then. During this downtrend, it broke through key supports at 30,500, 30,000 and 29,500 levels. Nevertheless, the index is currently poised above a crucial base at 29,000, and the 61.8 per cent fibonacci retracement level of the prior uptrend, which commenced from 26,643 levels in September 2019.

The daily relative strength index (RSI) has entered the oversold territory, signalling a possibility of recovery. The weekly RSI is on the brink of entering the bearish zone from the neutral region.

Besides, the daily as well as the weekly price rate of change feature in the negative territory, indicating selling interest.

The recent sharp fall has decisively breached the lower boundary of the Bollinger Bands, which means a recovery or a corrective rally in the index could be on the cards. Such a pull-back rally can take the index higher to 29,500 initially.

A decisive break above this barrier can push the index higher to 30,000 levels.

A strong break-out of 30,500 is required to alter the short-term downtrend and take the index northwards to 31,000 and 31,500 levels once again. That said, to alter the medium-term downtrend, the index needs to break above 31,500 levels.

Any failure to move beyond 30,000 can bring back selling interest.

On the downside, an emphatic break below the immediate support level of 29,000 can drag the index down to 28,500 and then to 28,000 in the short term.

Traders with a short-term view should tread with caution in the coming week.

Published on February 29, 2020

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