Nifty Bank Outlook: It's sell on rise market; avoid aggressive longs on PSU bank stocks

Nifty Bank made an intra-week high of 40,201.60, before closing the week at 39,395.35, down 0.51 per cent.  Nifty Bank has formed a bearish candle on the weekly chart. It has failed to close above 20- and 50 - DMAs.

The Bollinger band indicates that the index has closed on the edge of the lower band, which hints at further weakness. The RSI settled below the 45-mark, which signifies a lack of strength. Indicators such as ATR and ADX remained on the weaker side on the daily chart. But, on the daily chart, short-term buying opportunities are likely in private banking stocks.

Last week, ICICI Bank gained 1.93 per cent while AU BANK lost 5.14 per cent. Nifty Bank February futures traded at a 12 points discount while the put call ratio (PCR) closed at 0.73 level.

Nifty Bank Put options distribution shows that the 39,000 strike price, followed by 38,000, have the highest open interest (OI) concentration, which may act as support for the current expiry. Nifty Bank Call’s 40,000 strike followed by 40,500 witnessed significant OI concentrations and may act as resistance for the March expiry.

The banking index is forming lower low-high on a longer time frame chart. Benchmark Indices would catch upside directional movement once the banking index sustains above the 40,500 level. Till then, it’s a ‘sell on rise’ case. 

Nifty PSU Bank index ended at 3,565 last week. It may remain weak if the index closes below the 3,500 level. Traders should not go with aggressive long positions.

Long-term investors can accumulate high-quality banking stock at these levels, while short-term traders should trade in smaller quantities to protect their capital. The volatility is continuing because the concerns are still bubbling about just how stable the US banking sector is. The recent fall has faded hopes of sustained recovery and we might again end up seeing range bound moves in the index.

(The author of this article is Executive Director at Choice Broking)

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