Nifty Bank Outlook: Index vulnerable to selloff; Axis Bank, SBI may do well

Nifty Bank made a high of 43,578.40, before settling this past week at 42,188.80. The banking index lost 1.86 per cent for the week, falling below its support of 50-DMA. The fall below a key support is hinting at a short term weakness ahead.

The immediate support for the index has shifted to 41,000-40,700 range. The resistance for the index is placed at around 43,500 level. Momentum indicators RSI and MACD have inclined on the negative side.

Among private banks, Axis Bank has sustained its 20-DMA support and the stock may perform well in coming days. In the PSU banking pack, SBI still holds the command.

Nifty Bank January futures traded at a premium of 174 points. On the options side, Nifty Bank Put options distribution shows that the 41,000-strike has the highest open interest (OI) concentration, which may  act as support for the current expiry. In the case of Nifty Bank Call,  the 43,000-strike has witnessed significant OI concentration and the level may act as resistance for the current expiry.

On the weekly chart, a ‘Dark Cloud’ pattern has been formed, which suggests further selloff  is likely in the coming week. However, a sharp pullback cannot be ruled out.

PSU Bank stocks are losing its grip over the bears and it would be a good time to book profit and wait for the next leg for entry. The best strategy for coming days would be to keep  booking small profits, with trailing stop loss, as long as the index holds above 41,500 level.

The bears would be in command until 43,500 levels are taken out, as the Index has experienced tremendous resistance around these level over the past three weeks. The main trend appears to have run its course. Short-term traders can buy high-quality banking stock at these prices, but long[1]term investors should be using option methods to deal with volatility.

(Bagadia is Executive Director at Choice Broking)

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