Oversold condition on the lower time frame signals a bounce bank in Banknifty!
The Banknifty opened with a gap down and it ended the day down by over 2%. As a result, it closed below the 50DMA and at the lowest level of the month. After opening with a big gap down, all the intraday recovery attempts failed as pullback were used to offload position or create fresh shorts. The index declined by over 8% from the September 15 high. The 38.2% retracement support is placed at the level of 38192. The 20DMA is now in a downtrend. The index has also closed below the moving average ribbon. The RSI declined below the prior lows and broke the bearish pattern. It is on the 40 support line. RSI and MACD lines have confirmed the negative divergence implications as they closed below the prior low. The histogram shows bearish momentum has increased. While on the hourly chart, these two indicators are in extreme oversold condition. This may lead to a bounce towards the gap area. The previous swing low support is placed around the level of 37943. It is just below the 38.2% level. Two successive strong bearish bars have been formed on the Elder impulse system. The KST and TSI are in the bearish set-up. For now, the index is in a bear's grip. Before the RBI's action, it may trade in a range with minor pullback.
The Strategy for the day
The Banknifty declined below the 50DMA decisively. A move above the level of 38721 would be positive, and on the highest side it can test the level of 39138. Maintain a stop loss at 38600 for the long position. Above the level of 39138, continue with a trailing stop loss. But, a move below the level of 38582 is negative, and it can test the level of 38210 on the downside. Maintain a stop loss at 38690. Below 38210, continue with a trailing stop loss.
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