Bank Nifty Breaks Above 35,000; Is SBI Ready To Move?

  • Stock Market Analysis

On the monthly expiry day, The banking index Bank Nifty has finally broken its range on the upside. The high volatility witnessed in today’s session has led to a sharp recovery in banking shares from the day’s low. As of 2:30 PM IST, the Nifty Bank index is up over 2% to 35,045, surging past the 35,000-mark for the first time after it fell below this level earlier this month. 

The surge in Nifty Bank has been supported by most of the index constituents. The heavy-weight HDFC Bank (NS: HDBK ) which has a high weightage of 31.67% is up over 3% to INR 1,368.8, while ICICI Bank (NS: ICBK ) shares (holding 26.25% weightage in the index) are up 1.72% to INR 725.65. 

A total of 11 banking shares in the Nifty Bank index are trading positive, while only Kotak Mahindra Bank (NS: KTKM ) with a decent 14.13% weightage is trading in the red zone, with a cut of 0.44% to the last traded price of INR 1,899.05. 

With investors fleeing toward banking shares, one stock that seems to be on the verge of a strong breakout is the State Bank of India (NS: SBI ). The stock has fallen over 10% from the recent high of INR 522, marked in the previous month. 

However, after the recent fall, the stock had been trading in a converging range. In other words, the range of the stock has been consistently narrowing, which depicts a volatility contraction. This price action has led to a formation of a symmetrical triangle chart pattern on the daily chart. Generally, volatility contraction leads to an impending move, although the direction of it is difficult to be estimated beforehand. 

Image Description: Daily chart of SBI showing a symmetrical triangle chart pattern

Image Source:

The symmetrical triangle formation is hinting toward an upside breakout. The stock has breached and surged past its falling trendline resistance (as can be seen from the chart above). 

Looking at RSI (daily, 14) which depicts momentum in the underlying security with respect to past periods is also on the rise. The RSI is showing a value of over 47, which is the highest reading for the month, breaching its resistance of around 43. The volume for the day so far stood at 14.52 million shares, which is lower than the 20-day average of 17.44 million shares. Had volume been significantly higher than the average, the reliability of the breakout would have been much higher,

Traders/investors need to account for heightened volatility and adhere to robust risk management before making any investment decision.

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