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'Price ratio structure of Bank Nifty vs. Nifty indicates outperformance of former in near term'

On P&F chart, BankNifty has reversed after Bear Trap Formation, follow through is seen after Double top pattern.

May 31, 2020 / 03:12 PM IST

Pritesh Mehta

The Nifty50 index was stuck into the non-trending phase for far too long. It was a cumulative play of multiple factors like strained upmove, underperformance of banks and financials stocks, inability to provide a directional move and presence of multiple support around 8,800 mark.

However, things turned around swiftly from Wednesday, as Nifty quickly regained control above two-digit Gann number of 91(00) and more importantly sustained the rally thereafter in the week.

Sustaining above two-digit Gann number of 91(00) implies that index is going through a shift in the trading range on the upside with multiple support now seen around 9,100-9,200 zone. Post 8 percent recovery from previous week's low, index is now approaching towards hurdle zone of 9,600.

Multiple Gann numbers are marked around 96(00). Ideally, such sharp movement on the upside tends to result in consolidation. But strength continues to persist in broader markets, which indicates that participation from broader markets continues to rise. As per Thursday's EOD data, around 66 percent of Nifty500 components are trading above its 50-DMA, the figure is highest from the second week of February 2020. So stock-specific action is likely to continue in Indian markets.

Close

Our Intermarket analysis has shown us some strong reversals across major sectors. Nifty Financial Service index has been among the major sectoral loser in 2020, down by above 30 percent. However, ratio chart of Nifty Financial Service/Nifty has temporarily halted the decline and bounced back from low of September 2018. We expect this ongoing recovery to continue. Simultaneously, stateside financial and banking stocks were in action this week too. Ratio chart of US Financial Sector SPDR Fund/S&P 500 has also seen a reversal from the bottom, suggesting renewed action in US Financial Sector SPDR Fund.

Back Home, Nifty Midcap100 was up by over 5 percent. Point & figure (P&F) ratio chart of Nifty Midcap 100/Nifty has retraced 78.6 percent of the entire upmove which took place from low of 2013. It is now a probable trip top buy candidate. Sustenance above 1,420 would lead to outperformance of midcap stocks against the benchmark index. Bank Nifty rallied around 12 percent this week, reclaiming levels of 19,000. The recent structure of price ratio (i.e. Bank Nifty versus Nifty) indicates possible outperformance of BankNifty in near term. On P&F chart, BankNifty has reversed after Bear Trap Formation, follow-through is seen after Double top pattern.

Lead Technical Analyst - Institutional Equities, YES Securities

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol Contributor
first published: May 31, 2020 03:11 pm

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