In sync with the Nifty 50 index, the Nifty Bank has also changed its trend from a prior downtrend to an uptrend. On Friday’s session, the index surged past the previous up fractal of 40,201.6, marked on 23 March 2023. These fractals are a very good way to objectively define support and resistances. As the resistance has finally been breached, bulls might now get a chance to recoup some of their previous losses.
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On the upside, the rally could continue toward a level of 41,208. This is the low of 9 March 2023 and was succeeded by a decent gap on the chart amid the next session’s gap-down opening. A gap on the chart is a good reference point to gauge the potential of a rally/fall of the underlying security. In technical parlance, a security generally moves toward the gap in order to close it, also known as gap filling. Not every gap gets filled such as a breakaway gap or a runaway gap, but gaps in an index are generally closed, due to the high mean-reversion nature of the index.
mage Description: Daily chart of Nifty Bank (spot)
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So, now bulls should eye for 41,208 on the upside, which reflects a potential of 600 points from the CMP of 40,608.25, as of Friday. Even if the stock retraces back to test its breakout level, the dips should not be deemed as a selling opportunity, but a buying one as the trend structure has finally been changed.
If you draw a trendline from an all-time high, which if retested can stretch the rally by another 120 odd points to around 41,330. The index has rallied over 1,200 points last week, so definitely a retracement or profit booking could come next week. But a bullish stance should be maintained throughout the rally and traders should not worry about the dips.
On the lower side, the trough of 39,270 which is around the low of 27 March 2023, marks the new support level. As long as Nifty Bank is hovering above it, the trend is positive. This level can also be used as a stop loss for long positions.
As next week we have 2 holidays (1 before the current weekly expiry) traders should maintain caution on going long via options as they would lose their value faster (theta decay).
