Last Updated on Jan 25, 2022 by Aradhana Gotur

There has been chaos on the streets about the recent decline in the markets. Not just in India, but markets across the world have nosedived. Indian markets are going to witness the Parliamentary Budget session, which is a likely reason for extreme volatility. Decoupling from the global markets can’t be ruled out too. So, I thought of sharing my view on the favourite index of most of the traders, i.e. Bank Nifty

Weekly chart (Elliott plotting)

I am referring to the weekly chart of Bank Nifty, where wave plotting is considered from the extreme low of March 2020. Wave 3 turned out to be exactly 423.6% of wave 1 (extended wave). The recent decline looks like wave 4 and so there is a possibility of price inching higher to complete entire wave formations. Wave 5 may not be higher than wave 3 (assuming truncation during wave 5 due to extended wave 3). But hitting near high is certainly possible.

Daily chart with channel and Fibonacci Retracement levels

The brutal correction from October to December ended exactly on Channel highlighted using the blue colour. Consolidating for a couple of days, the Bank Nifty bounced sizable, surpassing the previous swing high. Previously (during the month of May 2021), when Bank Nifty bounced from the channel support, the emerged rally was strong. Prices took support of 50% to 61.8% of retracement and resumed the rally. Almost a similar behaviour is seen on the chart again. So likely support levels are highlighted using Fibonacci retracement levels (using technical analysis tools). 

I will now be showing three trending indicators, which are screaming the same view. 

Daily chart with Ichimoku

Price spiked with strength after taking support of the channel formation (highlighted earlier) and entered the cloud decisively. Bank Nifty just halted at Senkou Span-B resistance line (cloud resistance). Future cloud is positive and Tenkan Sen – Kijun Sen crossover is also positive so far. A minor decline of last week halted (so far) on the cloud line (Senkou Span-A). The next possible support can be Kijun Sen line, which is in the same vicinity as cloud support. This entire observation supports a bullish view likely to remain intact. Though breakout from the cloud will give a better confirmation. Kindly note that Ichimoku is a lagging indicator of technical analysis.

Daily chart with Super Trend

As the name suggests, the Super Trend is a trending indicator, which helps to capture using ATR and volatility. After the recent sell-off, this indicator has turned positive and presently, located below the price (approx. 750 points lower) offering good support to the Bank Nifty and so far bullish. 

Daily chart with 100 EMA

Yellow line highlighted on the chart is 100 periods Exponential Moving Average. Highlighted with arrows, it has offered support and resistance to Bank Nifty multiple times. Kindly note that the violation may happen for a small period, but a broad approach has to be taken into account. Price has reached almost near 100 EMA and is likely to get support (as technical behaviour seen in the past).

Ratio chart of Nifty and Bank Nifty

A very interesting observation is seen on the ratio chart of Nifty/Bank Nifty. A perfect textbook replica of head and shoulder is seen on the chart. It is about to witness the breakdown of the same. On the breakdown, it will confirm the outperformance of Bank Nifty vs Nifty. This doesn’t mean Bank Nifty will turn bullish. But this certainly highlights “outperformance”. 

Composition of Bank Nifty

It would be fair to look at all the stock charts, which are part of Bank Nifty composition. This screen has HDFC Bank, ICICI Bank, Axis Bank, Kotak Bank, Indusind Bank, SBI, RBL Bank and Bandhan Bank. All charts are weekly. Seven out of eight charts are well above the support trendline highlighted on the chart. Also, almost all charts are showing vertical spikes after testing the support line (as witnessed in the Bank Nifty itself). A minor decline is welcome to make a higher bottom. Till the time, prices are above the support trendline, the trend remains intact. 

Putting it all together

Looking at the overall Elliott structure on the weekly chart, intact channel on the daily chart, Ichimoku, 100 EMA, Super Trend and charts of compositions of Bank Nifty, it seems all is well and a decline can be a good buying opportunity. The ratio chart is suggesting the possibility of outperformance by Bank Nifty in the near time. No immediate buy on the index, but one can keep a check on technical formations to grab the next bullish move, which is likely to emerge anytime soon.

Statutory Disclosure: Kindly note that this update is only for educational purpose. It is safe to assume my personal position, my fund’s position, my clients’ position and my relatives’ position may be open in the counter. Prefer to take the advice of your financial advisor before initiating any position.

Kunal Rambhia
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