After falling for 4 straight weeks, Nifty Bank started this week on a positive note. The index closed 0.34% up at 44,002, the highest closing after 14 August 2023. However, the main question is, whether the downtrend is still intact or the uptrend has started.
Firstly, the previous swing of 45,118 hasn’t been breached yet. The very definition of an uptrend is a series of higher highs and higher lows (HH & HL). Therefore, as long as any previous high is not taken out, the broader trend should be deemed to be negative.
But the problem is, 45,118 is quite far, almost 1,120 points away from the CMP and if we wait till that level, then a major part of the uptrend might get missed. The workaround for this is to wait for the index to make a new swing high, retrace back to lower levels and then rise above that high to start the formation of HH & HL.
Image Description: Daily chart of Nifty Bank (spot)
Image Source: Investing.com
Another simpler way is to keep a close tab on the falling trendline resistance on the daily chart (as seen in the chart above). Trendlines are a good tool to gauge trend reversal and if the index breaks this trendline, then traders can safely estimate that the ongoing downtrend is probably over, at least for the short term.
I think, that this time Nifty Bank will finally be able to reverse the trend because of a very interesting price action. If you look at the last 5 sessions, there are 2 Doji candlestick patterns that have been formed. This pattern represents indecisiveness among market participants. Whenever this confusion appears at the top or bottom of a move, a reversal is expected. In the case of Nifty Bank, there are 2 Dojis around similar levels.
For the current week, I am becoming a bit bullish on the index, at least, as long as the current decline’s low of 43,600 is not breached. This level can also be used as a stop loss for long positions. And before going long, waiting for the trendline breakout would probably be a good idea.
Disclosure: I have multiple positions in Nifty Bank.
At the beginning of the month, I shared my personal Nifty Bank options trade on Twitter, which is now giving almost 16% ROI. You can follow me there for such content. My handle is - aayushxkhanna
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