The Bank Nifty index has made waves in the market, hitting an all-time high of 56,098 in April, but it now hovers around the 55,000 mark. Meanwhile, the Nifty50 benchmark index is still around 7% away from its own record high, while banking stocks have continued to outpace the broader market. However, the recent retracements from 56,000 to 55,000 raise questions about the strength of this bullish momentum, particularly when analysed through the lens of technical indicators like the Relative Strength Index (RSI).
The RSI, or Relative Strength Index, is a popular momentum oscillator traders use to assess the speed and change of price movements.
We recently analysed the RSI levels for all the constituents of the Bank Nifty, and the results were eye-opening. Of the 12 stocks that comprise the index, 10 show bearish signs on the daily RSI chart. This is a significant signal, as it suggests that most banking stocks are facing downward pressure in terms of momentum, even as the Bank Nifty index remains above 55,000.
The Bank Nifty index experienced a remarkable rally earlier this year, climbing from a low of 49,156 to a new peak of 56,098 in just 10 trading sessions. However, the current pattern suggests a shift in sentiment, with the index now trading within a symmetrical triangle formation. This classic chart pattern typically signals consolidation or indecision in the market.
Yet, the RSI is showing some troubling signs. Specifically, we are witnessing a negative crossover of the RSI over its average, historically an indicator of waning bullish momentum. This negative crossover occurs when the RSI dips below its previous peak, suggesting that the upward momentum is slowing down.
Historically, negative crossovers from RSI levels above 75 have been followed by price corrections or dips, making the current setup concerning for Bank Nifty.
If the Bank Nifty index breaks down from the symmetrical triangle pattern, particularly at the 54,700 level, we could see an acceleration of the bearish momentum. A breakdown at this level would suggest that the market sentiment is shifting, and the index could potentially fall further, increasing the likelihood of a deeper correction.
The Stock Giants: HDFC Bank, ICICI Bank, Axis Bank, and SBI losing Strength
Looking at the constituent stocks of Bank Nifty, some of the biggest names in the banking sector are also showing signs of weakness on the RSI. Stocks like HDFC Bank, ICICI Bank, Axis Bank, and SBI have all posted bearish signals on their RSI charts. These heavyweights drive much of the performance of the Bank Nifty index, so if these stocks continue to face downward pressure, it could drag the entire index lower.
Given that 10 out of 12 Bank Nifty constituents are showing bearish RSI signals, investors should proceed cautiously. While the broader market may still have room to grow, the banking sector appears to be showing signs of fatigue, and the technical setup points to the potential for a pullback or correction.
Disclaimer:
Note: We have relied on data from throughout this article. Only in cases where the data was unavailable have we used an alternate but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Brijesh Bhatia has over 18 years of experience in India’s financial markets as a trader and technical analyst. He has worked with UTI, Asit C Mehta, and Edelweiss Securities. Presently, he is an analyst at Definedge.
Disclosure: The writer and his dependents do not hold the Stocks discussed in this article. However, clients of Definedge may or may not own these securities.
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