There’s no doubt that the Nifty 50 index is in a strong uptrend. The benchmark index closed this week with a decent 1.41% rally to 18,826, but on the opposite side, Nifty Bank fell 0.12% to 43,938.15.
The selling pressure in this banking index has been evident since the last couple of sessions. Despite making a new lifetime high earlier this month, the index has been struggling to get a follow-up demand. In fact, looking at the weekly chart, the index has been closing in the red for 3 consecutive weeks now. And due to this lackluster performance, the Nifty 50 index has been deprived of making a new high.
Image Description: Daily chart of Nifty Bank (spot)
Image Source: Investing..com
On Friday, we witnessed a good rally of 1.14% which pared some of the losses of the previous session when the index fell 1.24%. But if you ask me, the trend of the Nifty Bank is still on the weaker side, especially when compared with the Nifty 50. I’ll keep the analysis simple.
Donchian channel, one of my favorite trend indicators has turned bearish for the first time since the beginning of the rally from April 2023. The 14-day DC had given a sell signal on the daily chart on Thursday, which is the first-ever signal in over 2.5 months. This is a simple quantitative way to decide the trend direction without any ambiguity.
Another reason is, on 15 June 2022 when the index slipped 1.24%, it actually broke below the down fractal of 12 June 2023. These fractals are a good way to get an estimate of the structure of the underlying in the manner of highs and lows. The current structure of Nifty Bank is lower low and lower high, as per fractal analysis, which is a classic representation of a downtrend.
So all in all, while Nifty 50 might again take the lead this week, long-holders in Nifty Bank might want to raise their guard. It seems to me that Friday’s rise is a selling opportunity, at least as long as the index is trading below the previous up fractal of 44,212. Once this level gets breached, short positions might become risky and the market momentum would start to favor the bulls.
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