If one sector has to be talked about that has kept a smile on investors’ faces since June 2022 lows is the banking space. No other sector has been able to outpace banks both in terms of the magnitude of returns and the drawdowns during the rally. Today, the soared to a new high of 40,265.75, which is the highest level in over 10 months. Not just that, the index also soared to the highest level since November 2021, while the index has also surpassed its previous high of February 2022.
While the Nifty Bank cleared the previous peak of 39,759.15 and closed the session on quite a bullish note, there are a few concerns. The first is the negative divergence that is being formed on the daily chart. This divergence is being formed around the overbought zone which is a bit concerning especially for those who want to make a fresh long position. Even the nearest stop loss for the buy position would be around 39,250, which is a good 950 points below the CMP (spot). However, those who are already holding long should not exit prematurely but tightening the stop loss could be a good idea.
Another fact is that the hasn’t participated in the rally yet. While the Nifty Bank is comfortably trading above the August 2022 high, the Nifty 50 is yet to catch up. A hurdle of 17,800 – 17,850 is a strong resistance for the Nifty 50. However, one thing that could go in the favor of Nifty is the reversal in the US markets. Since the last many sessions, the US markets have been trending down and a bounceback from there could be a catalyst for the Nifty 50 (which essentially means the performance of the broader markets) which might support the banking space rally. Apart from the negative divergence and relative underperformance of the Nifty 50, there is virtually no hurdle for the Nifty Bank till the all-time high now. And despite a divergence, there is absolutely no signal to go short, as of now.
The option chain data suggest that 40,500 CE for the 15 September 2022 expiry has an OI of 33.77K contracts, the highest till the 41,000 CE. Therefore, 40,500 could be the immediate resistance for Bank Nifty, which gives it another leeway of 300 points on the upside. On the downside, 40,000 PE has an OI of over 51K contracts which would act as strong support. But this is just 200 points down from the CMP and one good correction might jitter the confidence of bulls.
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