The recovery of Bank Nifty has been very strong as we observe the Daily Candlestick chart. Historically the Nifty Bank index has been weaker than the NIFTY index, however the rally in the months of July and August 2022 has shown an amazing breakout for Bank Nifty.
The breakout is a clear sign for the end of the down trending channel. We might see a good recovery in the banking sector in the coming mid-term. The mid-term trend of Nifty Bank will be mildly bullish or sideways as the channel has been broken on the upper side.
The ADX value was 54 on 18th August 2022. ADX value above 40 means the trend is unsustainable and the trend is likely to reverse. Hence the uptrend might suffer as we can already observe there has been tremendous profit booking in the last week of August.
The strong rally is clearly an aftereffect of the wonderful earnings results of the banking companies. The major private banks such as HDFC Bank, ICICI Bank, Axis Bank and Kotak Bank have posted amazing growth in the Q1 FY23 quarterly results and the rally is backed by the earnings. The government owned SBIN performed better than expected.
The banking performance has been fantastic in the first quarter of this financial year. Bank owned asset quality has improved and a stable trajectory can be seen in the coming months. We face a big problem of gaps in Bank Nifty. Since the start of the rally, there have been multiple gaps created by Bank Nifty and there is a high probability of gaps being filled. We can observe the gaps in the rectangular square boxes in the following candlestick chart:
Bank Nifty might face bearishness soon as operators dump stocks for profit booking which will put tremendous selling pressure on the banking index and bank stocks. Observe the yellow boxes on the chart, those are the gaps created by Bank Nifty during the bullish rally. One gap has been filled however another was created while Bank Nifty is moving down.
We might see Bank Nifty coming down to fill all or most of the gaps created during the rally. As of 23rd August 2022, Bank Nifty is taking support at the 23.6% retracement level. We might see Bank Nifty soon at the 38.2% retracement level and the 50% retracement level as there are gaps at both these levels. We can focus on trades in the short direction.
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