After a massive under performance against the benchmark Nifty for last few weeks/months, the much-awaited comeback of market-leading sector BankNifty has ensured the incessant of bull rage on Dalal Street. If the headlines for most part of August was dominated by the rally in broader markets, this week's action confirmed the return of BankNifty bulls. A rally of 10 percent in the week has resulted in a shift in the orbit on the upside. Midpoint of current three-digit Gann channel is placed at 257(00), which is likely to be challenged in the near term.
Ratio of BankNifty/Nifty has seen a sharp reversal from the depth of 1.93 back in third week of August. Currently, it is trading around 2.10 levels (back around the peak of July 2020). However, it is approaching point of polarity zone on the broader ratio chart, around level of 2.12 ratio has faced pressure since June 2020. Sustenance above the same is essential for continuation of recent revival.
With BankNifty leading from the front, Nifty Financial Services also joined in the party. For the week, it outperformed the Nifty index and rallied by over 6 percent. In Friday's session, Nifty Financial Services index broke above the three-digit Gann number of 116(00). For recent pullback to be in play, this Index needs to sustain above the same. Weekly ratio line chart of Nifty Financial Services/Nifty has reversed from support zone. Confirmation of breakout on standalone chart & reversal on ratio chart implies outperformance of select financial stocks.
Market jubilation could be attributed to a variety of factors, but consensus seems to hinge on a strong comeback by banks. It outperformed the benchmark index last week and it seems leadership index is trying to make up for the lost time as it stormed past the peak of July 2020. On point & figure (P&F) chart (0.5% *3), BankNifty has staged a triangle breakout, rising double top breakout alongwith a bullish anchor column and bullish turtle breakout, implying strength in the current move.
Though Nifty underperformed against the banks & financials, it continues to move higher. This week it confirmed a shift in orbit on the upside by moving above three-digit Gann number of 116(00). In Friday's session, Nifty's advance-decline ratio was about half of Nifty components ended in red, suggesting continuation of stocks' specific theme.
Shifting range higher, levels of 11,400 are likely to act as an immediate floor for the benchmark Nifty. Post steep decline in February & March 2020, base of the index has been gradually shifting higher, implying short-lived retracement moves. On P&F chart, multiple prior vertical count continues to be open, with implies a move towards 11,850 zone.
With action picking up in the laggards, earlier leaders have taken a backseat. In the month of August, ratio of Nifty IT/Nifty has corrected sharply, implying underperformance of IT stocks against the Index. Confirmation of a move below 38.2 percent retracement mark would result in further decline in ratio and relative weakness in IT stocks. Both short-term & long-term breadth of index is in overbought zone.
The author is Lead Technical Analyst - Institutional Equities at Yes Securities.
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