Bank Nifty ends week tad below 46,000. What should be trading strategy for Monday?

Bank Nifty closes below 46,000, underperforms Nifty

Bank Nifty has been underperforming when compared to the Nifty with the prices forming a 'bearish engulfing' pattern on February 2. The rejection from higher levels can be seen from mid-Bollinger bands. The Nifty has managed to touch the lifetime high levels but Bank Nifty is still 2,000 points lower from its record highs. From the lows formed at 44,429 in this entire rise, we have not seen a single close below prior candle low. Now a close below the low of a 'bearish engulfing' pattern which is at 45,900 will indicate the onset of a downturn.

On the short-term charts, support for Bank Nifty is at the 45,700 level and if the same is broken, then we can expect a move to 45,050 on the downside. On the upside, major hurdle for the index is seen at 46,500. As long as the same remains intact, the index may remain under pressure.

Bank Nifty hourly chart with Open interest profileBank Nifty open interest profile chart shows a build-up or a reduction in Call and Put open interest. The left hand side green (fluorescent) shade represents change in Call open interest compared to prior day and the right hand side red represents Put open interest. As we can see there is sharp buildup near 47,000 and 46,500 Call side open interest that suggests these levels to act as major hurdle.

Along with this we can see a reduction on 46,000 open interest for both Calls and Puts. Now if the Bank Nifty sustains below 46,000 in the opening hour, then the put sellers can panic resulting into covering their positions. This can build pressure on prices.

Also, as shown on the hourly chart, prices moved up within the upward sloping channel. The sharp rise seen on February 2 found resistance near the channel from where prices reversed back sharply back to the channel support. Decisive breach below channel support near 45,800 will build further pressure on this index as it will break the trendline support.

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Ashish Kyal

Founder|Waves Strategy Advisors - wavesstrategy.com

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KST indicator: KST (know sure thing) is a momentum indicator that works similar to other indicators like MACD (moving average convergence divergence. But KST is not lagging like MACD. It is now lying near the signal line and any pressure in prices will generate negative signal on this indicator as well.

In a nutshell, Bank Nifty is at important juncture and sustainability below 45,800 will put pressure on prices for a move to 45,500 or lower. Move above 46,500 is required for positive trend to continue in this index.

Trading Strategy: Bank Nifty Futures short positions can be created below 46,000 (futures) levels with resistance at 46,450 on upside and expecting a move to 45,350 on downside.

Follow Ashish Kyal on Twitter - @kyalashish

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