Bank Nifty on the verge of shattering all-time high - indicators in overbought zone suggest caution!

The Bank Nifty rallied nearly 0.90% on the weekly options expiry day and formed a sizable bullish candle carrying a higher high and higher low. With this strong up move, the index is within striking distance from its all-time high level.

The index has managed to close above all the swing highs now. With over 300 points rally in the last leg of trade led by the broader rally. The HDFC bank made a new lifetime high on Thursday, which is the main reason behind the rally. The PSU Banks SBI and PNB also contributed to the bullish strength. All the indicators are now in the overbought zone. Volumes were flattened. The Bank Nifty is trading 3.45% above the 20DMA and 6.5% above the 50DMA. The RSI is at 78, and the MACD line is far away from the zero line.

On an hourly chart, there has been an observation of negative divergence formation of the leading indicator RSI. Going forward, a close below the level of 43460 will get a confirmation of negative divergence. On the other hand, if it is able to sustain above the level of 43600, it can form it reclaim its all-time high or touch a fresh all-time high. Stay with the trend as long as the price does not close above the prior bar low, but it's important not to be complacent and hence keep a trailing stop loss for a long position.

Strategy for the day 

The Bank Nifty cleared the resistance and it is trading within striking distance of its all-time high. Going forward a move above 43675 is positive, and it can test the level of 43890. Maintain a stop loss at the level of 43500. Above the level of 43890, continue with a trailing stop loss. But, a move below the level of 43500 is negative, and it can test the level of 43278. Maintain a stop loss at the level of 43675.