Why Bank Nifty corrected sharply and what lies ahead

The banking index had been a major laggard and has corrected sharply after forming a high near 37,700 in February 2021. See the reasons below why this sector is in for some major trouble.

We are showing Neo wave counts along with Ichimoku Cloudthat gives an objective way of understanding why the Bank Nifty corrected sharply and what to expect from there.

Bank Nifty daily chart

Elliott Wave analysis

The Bank Nifty had clearly broken below the Ichimoku Cloud, which is the green shaded area that had protected all the previous falls until recently. The fall had continued even below the Kijun-Sen (baseline—red colour) and Tenkan-Sen (conversion line–blue colour). Up until now, the index failed to even move above the conversion line, which can be looked at as a moving average resistance that is plotted in a different way. The resistance of this line is now at 32,230 levels.

As prices have decisively broken below the cloud, it also suggests that a major trend is probably reversed and any pullback should be temporary.

Neo wave pattern

Neo wave chart also suggests that the entire rise from the lows formed in March 2020 has been in triple corrective pattern and the final leg wave Z is complete. This is in sync with the outlook as per Ichimoku cloud and now a break below the recent lows of 30,500 will resume a downward trajectory.

On the upside, the conversion line near 32,200 followed by baseline near 33,500 will be the major hurdle to cross for this index.

Short-term range-bound movement can be expected. Pullbacks should be temporary and one can accordingly form a trading strategy by looking at simple yet powerful methods of Ichimoku Cloud and Neo wave patterns.

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