Nifty Bank: What lies ahead?

On Monday, Nifty Bank opened significantly lower by about 400-odd points on account of weak global cues.

The index remained resilient during market hours and recovered over 500 points. At the end, it closed marginally higher by 75 points. On the technical chart, the index formed a bullish candle and closed nearly at day’s high. However, the broader picture is that the index is consolidating in a downward sloping channel. Since its prior swing high, it plunged nearly 6.50% and closed below all its key moving averages.

Along with the weakness persisting in the index, technical indicators are indicating neutral to bearish sentiment. The 14-period daily RSI is below 50 and trend sideways. The MACD line and below the signal line and zero line, thus indicating bearish momentum in the index. The index is about 2% below its 20-DMA and 200-DMA. Moreover, we observe that there are strong resistances prevailing which might be difficult for the index to pass through.

On analyzing the future & options data, 37000-level has the highest open interest for this week’s expiry. The PCR stands at 0.74 and not much of put writing is done as compared to the call options. This indicates bearishness among the market participants.

During the quarterly results, HDFC Bank, ICICI Bank, Axis Bank and IndusInd Bank posted double-digit profit numbers and asset quality has improved on account of lower provisions. Despite the good numbers, the stocks have not been able to perform well. Moreover, Fed meeting scheduled on May 4 is expected to induce huge volatility in the index. The index is likely to make violent moves on either side as it continues to find a clear direction. On the downside, the 35000-level shall act as ultimate support for the index, following which the index can see a sharp downside if it breaches this level. However, any positive commentary in the Fed meeting can trigger short covering and index can rally towards 38000 and beyond.