Nifty Bank outlook: Avoid buying the dips, weak advance-decline ratio a concern

There was a lot of shuffling in the Indian market as well as the world market last week.  The US Fed sees more rate hikes ahead, but at a slower pace, the recent meeting minutes suggest. The Nifty Bank index rose 0.4 per cent to end last week at 44,925. But, the Nifty Finance Index fell 0.9 per cent for the week.

Three Nifty Bank stocks advanced for the week while nine others declined. One of the top gainers in the banking pack was Punjab National Bank (PNB), which gained 16.94 per cent for the week while Bandhan Bank was down 4.88 per cent during the same period. The banking index has managed to hold above its support of 20-DMA. 

Nifty Bank formed a ‘Gravestone Doji’ pattern on the weekly chart. The candle had a long upper shadow that depicts a fall from the high. There was no lower shadow. Traders should be neutral on the long side and avoid ‘buying the dip’ hastily, given the volatile phase and negative advance-decline ratio that appears to have strongly swung in the favor of bears. Indicators such as the RSI have recently dropped from 70 to 60 in daily time frames. Nifty June Bank futures traded with a premium of 78 points. Nifty Bank Put options open interest (OI) distribution shows that the strike of 44,000, followed by 43,500, got the highest OI concentration, which may act as support for the current expiry. 

The Nifty Bank Call strike of 45,000, followed by 46,000 witnessed significant OI concentrations and may act as resistance for the current weekly expiry.  

PSU banking stocks showed some strength last week and it would be a good time to enter for short-to-medium term buying. Among private banks, HDFC bank remained on the weaker side.

Going forward, we believe a close above 45,350 on Nifty Bank would be important for further extended rally. It would be a bit difficult for this rally to sustain since the global market construct is turning unfavorable with major weakness in the developed markets and rising bond yields. All eyes will be on how US policymakers are reacting to economic developments and rising interest rates in the US.