Three key technical indicators suggest Nifty, Bank Nifty in oversold zone

By ET Intelligence Group

Is the pain for equity investors likely to get over soon? Technical indicators seem to suggest that some respite may be in the offing.

Three key technical indicators — Relative Strength Index (RSI), Put-Call Ratio (PCR) and Stochastic Oscillator are suggesting that markets are now in an oversold zone.

At the end of Wednesday’s trading, the RSI of Nifty is 29 and the Bank Nifty’s is 28. An ending of less than 30 indicates that the stock or the index is in oversold territory, while more than 70 indicates overbought zone.

“Nifty may bottom out around 7,650 levels. We may see recovery in IT, pharma and select private banks,” says Punit Kinra, technical analyst at Bonanza Portfolio.

“In August 2013, the index bounced back from 100-week moving average and we had a strong rally without any meaningful retracement. The recent correction could take us lowest to 100-WMA which is around 7600. The rising trend line on the monthly charts is not yet violated despite the recent carnage,” said Pritesh Mehta, senior technical analyst, India Infoline.

Also, stochastic slow oscillator for Nifty is 27 and Bank Nifty is 16. A reading of below 20 indicates it is oversold. The Put-Call Ratio is another indicator showing a similar trend.

Usually, portfolio managers use index put options to hedge their underlying portfolio. A Put-Call Ratio for an index below 0.8 indicates market is oversold.

Bank Nifty’s PCR is now 0.61 compared while its 3-year average of 0.90, while Nifty’s current PCR is 1.06 compared with 1.15. However, investors should note that an oversold position may not necessarily mean a reversal, which some times can take a few weeks.