Nifty In Technical Charts: Nifty Down Into Support

Having underperformed for nearly three years, would it be time for the private banks to turn around?

<div class="paragraphs"><p>(Source: stockgiu/Freepik)</p></div>
(Source: stockgiu/Freepik)

Dullness tinged with weakness was expected. And that is what we got. Three days of consolidation during the week and a day of fall on Friday is the summation for the week. Not much to comment on, as we have already spoken at length on the prospects in earlier letters. But some points may be worth repeating, just for the sake of reinforcement.

Banks were expected to lead any attempts to rally but they simply refused to live up to that billing. When the week commenced with banks getting thumped, that jig was up, for sure. To expect them to lead a revival therefore was out of question. Other sectors tried feebly, but were forced to give up as news flow through the week was not supportive.

China and Russia muddied the waters with rate changes and currency moves that roiled sentiments across global markets a bit and our INR weakened. In a battle of global currencies, our RBI doesn’t have too many choices and many times is forced to follow a certain path. Food inflation was top on the list as far as adverse news was concerned and kept the pressure on rally attempts from succeeding.

Now, indices have been falling for four successive weeks. Still no major price damage, as can be seen from the weekly chart 1.

Nifty In Technical Charts: Nifty Down Into Support

In fact, prices are down to the 23.6% retracement in the daily charts and to the TS line on the weekly charts. The weekly chart shows us, however, that if the weakness were to persist, then there is some room for declines as the next set of supports on the weekly are a good distance away.

Before that sounds very scary, let me assuage it quickly with a posting of the daily chart with same indicators (chart 2). This chart shows that the prices have now dropped to the level of the Ichimoku cloud and hence, is at support. There is a gap to the left side of the chart and that gap support is also providing some halt to the fall. Two lines are marked for the current fall and these are equal length swings (for an AB=CD pattern) in case the fall continues. This suggests the next support is at 19,000 levels and there is another gap to the left around those levels to provide support once again.

Nifty In Technical Charts: Nifty Down Into Support

The only issue that we face with this chart is that the CS line has thrust into the prices and once that happens, the pace of moves tend to slow down. But, that is quite in line with what we have been expecting already, based on time cycles for the month. In addition, we have TS and KS lines now negatively phased and the levels of TS line (near 19,620) would now offer resistance to rally attempts in the week ahead. 

Using Gann’s price cycles, measuring from the lows as well as the highs, I find a confluence of support that lies in the 19,000-19,125 area. So, that is the worst case I expect for the week ahead.

Let’s check time cycles for the next week.

Barring 21st, which may be yet another ranging day with a down bias, the trends should pick up into the end of the month. So largely, we may end August better than the lows reached so far. Calendar day counts from the June 22 low suggests that we should make a low in the early part of next week (perhaps by Monday Itself) and then move to a recovery for a target around 19,650-700 area.

So, that is the road map I am laying for tracking the market for the week ahead.

Over the recent weeks, there is a distinct difference in the positioning of the two sets of banking stocks. The index for PSU banks is headed higher, ready to punch up to new highs. Contrastingly, the index for private banks seems to be heading lower. Here is a startling chart of relative performance of private banks over public sector banks. See Chart 3.

This chart shows that the private banks have actually been underperforming the collection of PSU banks since November 2020. This data was there to see all the time but I hadn’t looked at it earlier and hence, was quite startled to see the evidence. As of last week, too, the private sector banks continue to underperform.

Nifty In Technical Charts: Nifty Down Into Support

In our quest to forecast and trade Bank Nifty directionally or using options, I feel one has missed out an entire bull market scenario of PSU banks. Doubtless, many of us participated in the gains of many a PSU bank but our focus has always been stolen by the glamour of the private banks and colouring our scepticism of prospects of PSU bank.

During the first big rise from the March 2020 bottom, private banks gained 112% within a year and in the same period, PSU banks did a similar 120%. But in the subsequent period till now, PSU banks gained a further 88%, dwarfing the much smaller gains made by private banks at just 22.5%. In other words, PSU banks gained four times as much, relatively, as compared with private banks.

Chart 4 shows the PSU bank chart and the relative strength with the private banks in the lower panel. The rising line has given way to some lateral moves over the last several months but the outperformance (line staying above 0) is very evident.

Nifty In Technical Charts: Nifty Down Into Support

Armed with that info, it is now evident that whenever PSU banks trend revive, we should continue to participate in them. The halo of private banks has certainly been eroded by market action. 

The banking sector is one of the most heavily owned by funds. A few years ago, the PSU banks were probably quite underowned by them and when the process of cleaning up their balance sheet got underway over the last few years, it seems that there has been an aggressive buying into these stocks by the big guns. This is probably what produced the surge in performance.

It will be interesting to track the situation ahead. Having underperformed for past nearly three years, would it be time for the private banks to turn around? For sure, the interest in the banking space is as high as ever and there is almost unanimity that it would be at the head of any rise in the markets. But a relative performance chart between the two groups will be an interesting chart to maintain in the coming months for us to know where to park the money in this sector. As of now, the exits from private or switch from private to PSU seems to be continuing from all kinds of players.

CK Narayan is an expert in technical analysis, the founder of Growth Avenues, Chartadvise, and NeoTrader, and the chief investment officer of Plus Delta Portfolios.

The views expressed here are those of the author and do not necessarily represent the views of BQ Prime or its editorial team.