Technical indicator hints at rebound in Bank Nifty
Analysts said the RSI for Bank Nifty shows the index is oversold at the moment. The index's RSI has fallen to this level only three times in the last one and a half years. It has been followed rally in the banking index.
Mumbai: Following a 15 per cent fall from record high level, Bank Nifty is likely to see a comeback if a popular technical indicator is to go by. The relative strength indicator or RSI for Bank Nifty is at the 24 level - which is the lowest since March 2020. Traders use this measure to analyse whether the index or stock is overbought or oversold.
Analysts said the RSI for Bank Nifty shows the index is oversold at the moment. The index's RSI has fallen to this level only three times in the last one and a half years. It has been followed rally in the banking index.
"Every time the RSI of Bank Nifty fell below 30 or came near that level, the index has seen a strong upmove. This happened in March 2020, September 2020 and April 2021, each time followed by sizable gains," said Siddarth Bhamre, director-alternative investments and research at InCred Equities.
Bank Nifty ended down 0.8 per cent at 35,965.30 and has fallen 14.7 per cent from the all-time high of 41,829.6 hit on October 25. Overstretched market valuations and fear of new Covid-19 variant has pushed markets off the cliff over the last few days, hitting Bank Nifty as well.
Rajesh Palviya, head-technicals and derivatives at Axis Securities said usually there is a bounceback on RSI turning below 30 but added that investors should wait for 3,7200 to be crossed on a sustainable basis.
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"The index is oversold on charts and there is a possibility of a bounce back. The risk reward is not favourable to short the market including the Bank Nifty," said Palviya. "First level to watch out for is 36,800 and 37,200, following that the index could rise to 38,000," he said.
Bank Nifty is trading near its crucial long term moving average of 200-day simple moving average. When an index or a stock trades above or below the 200-DMA, it points to a change in long-term trend. The 200-DMA is considered a long-term moving average as it signifies a stock's trend over the past year.
"A pullback action from this important level is likely," said Palviya. "A year has roughly 200 trading sessions. It also tends to be a key support or resistance level for a security."
