Technical chart shows a tough road ahead for Nifty PSU Bank!

The index is down by over 2% today and one of the worst-hit sectors which was severely affected by the sell-off.

The NIFTY PSU Bank Index is designed to reflect the performance of the public sector banks. It constitutes 13 stocks and the rescheduling of index constituents happens bi-annually every year. State Bank of India holds the highest weightage in the index which is about 74%.

The index has run up lately and has surged about 18% in 14 weeks. However, the index has formed an inverted hammer pattern on the weekly chart which is a bearish sign. It has formed a long wick on the higher side and closed at a week’s low. Moreover, the index had experienced resistance at 3050 levels from which it tumbled over 15% thereafter. The index is down by over 2% today and one of the top sectors which was severely affected in the sell-off. The technical parameters are hinting at weakness too. The 14-period daily RSI has fallen sharply to 57, while MACD is about to give a sell signal. The index has closed below the 10-day moving average which is a bearish sign. Along with this, it is closing the gap between its 20-day short term moving average and spot price, which leads to a dubious picture.

The index has closed below its short term support of 3055 and looks bearish for the short term. The next support lies near 290, which happens to be its 20-day moving average. Any closing below it can trigger a free fall in the index and can fall towards 2800. Traders should closely watch stocks like State Bank of India, Bank of Baroda, to get clarity about the index in near future. They should cautiously consider appropriate position sizing if they wish to enter the trade. The technical chart shows a tough road ahead for Nifty PSU Bank and bad global cues can further make things worse for the index.