Bank Nifty's overbought condition signals the need for caution among investors!

Led by the PSU banks, the Bank Nifty rallied over 0.5% on Friday and it managed to close above another swing high. 

It retraced more than 78.6% retracement level of the prior downtrend. Interestingly, 13 weeks of downtrend has almost retraced 80% in just five weeks. It rallied for all five trading sessions last week. It is trading 3.64% above the 20DMA, and the expansion of Bollinger bands suggests that the index may enter into a consolidation phase as usually after an expansion phase, price tends to contract for some time. 

The daily 14-period RSI has reached an extreme overbought condition. This is another sign that the index may consolidate for some time. The MACD line is also far from the zero line, showing an overbought condition. But, at this juncture, there is no weakness visible in any of the timeframe. On an hourly chart, Friday's last-hour candle is a shooting star, which is a sign of caution for the bulls, but given the fact that it was a long weekend ahead, traders would have preferred to book the profit ahead of it. A close below the level of 43000 on an hourly basis will be negative for the index. Only below the level of 42600, the case would turn for a bearish reversal. On the upside, the immediate target is placed at the level of 43578. Above this, it can form another lifetime high. Be with a positive bias as long as it trades above the prior bar low. 

Strategy for the day 

Bank Nifty is above the prior swing highs and showing no signs of weakness. A move above the level of 43241 is positive, and it can test the level of 43445. Maintain a stop loss at the level of 43125. Above the level of 43445, continue with a trailing stop loss. But, a move below the level of 43125 is negative, and it can test the level of 42926. Maintain a stop loss at the level of 43241. Below the level of 42926, continue with a trailing stop loss.