Bank Nifty's overbought condition signals the need for caution among investors!

Bank Nifty's overbought condition signals the need for caution among investors!

by 5paisa Research Team Last Updated: May 02, 2023 - 10:19 am 167 Views

Led by the PSU banks, the Bank Nifty rallied over 0.5% on Friday and it managed to close above another swing high. 

It retraced more than 78.6% retracement level of the prior downtrend. Interestingly, 13 weeks of downtrend has almost retraced 80% in just five weeks. It rallied for all five trading sessions last week. It is trading 3.64% above the 20DMA, and the expansion of Bollinger bands suggests that the index may enter into a consolidation phase as usually after an expansion phase, price tends to contract for some time. 

The daily 14-period RSI has reached an extreme overbought condition. This is another sign that the index may consolidate for some time. The MACD line is also far from the zero line, showing an overbought condition. But, at this juncture, there is no weakness visible in any of the timeframe. On an hourly chart, Friday's last-hour candle is a shooting star, which is a sign of caution for the bulls, but given the fact that it was a long weekend ahead, traders would have preferred to book the profit ahead of it. A close below the level of 43000 on an hourly basis will be negative for the index. Only below the level of 42600, the case would turn for a bearish reversal. On the upside, the immediate target is placed at the level of 43578. Above this, it can form another lifetime high. Be with a positive bias as long as it trades above the prior bar low. 

Strategy for the day 

Bank Nifty is above the prior swing highs and showing no signs of weakness. A move above the level of 43241 is positive, and it can test the level of 43445. Maintain a stop loss at the level of 43125. Above the level of 43445, continue with a trailing stop loss. But, a move below the level of 43125 is negative, and it can test the level of 42926. Maintain a stop loss at the level of 43241. Below the level of 42926, continue with a trailing stop loss. 

How do you rate this article?


Start Investing in 5 mins*

Rs. 20 Flat Per Order | 0% Brokerage

About the Author

Our research team is composed of some highly qualified research professionals, their expertise range across sectors.


Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial. Also, The

Open Free Demat Account

Resend OTP
Please Enter OTP
Account belongs to

By proceeding, you agree to the T&C.

Start Investing Now!

Open Free Demat Account in 5 mins

Enter Valid Mobile Number