Bank Nifty flashing signs of tiredness; be watchful!

Bank Nifty closed above its important psychological level of 39,200 with gains of 0.51% on Tuesday.

The index trimmed almost 200 points from day’s high and this led to formation of spinning top like candlestick on the daily chart. Interestingly, since the last four days, the daily trading range has been shrinking. With a series of indecisive candles, it shows the clear tiredness of the bulls, after a spectacular run from the lower levels.

 Currently, the index is trading above all the important moving averages like 20, 50, 100 and 200DMA. The RSI is in an extreme band at 81.12. Even though there are no weaker signals, it is better to cautious as the rally is over-extended. On a 75-minute chart, the index has formed the lower high candles. It failed to move above the previous bar high. This shows inherent weakness. The price has made a high, but the Relative Strength line has not yet made a new high. This shows the underperformance compared to the broader market. Even Mansfield's Relative Strength indicator is declining. Hence, going forward the level of 39445 is likely to act as a crucial resistance level. Failure to move above this level would lead to consolidation or a countertrend move.

Strategy of the day

Bank Nifty has formed a spinning top like candle after testing the prior swing high, which was made in early part of February. It is better to be cautious. A move above 39282 is positive, and it can test level of 39445 on the upside. Maintain a stop loss at 39160. Above 39445, continue with a trailing stop loss. But a move below 39100 is negative, and it can test the level of 38900 on the downside. Maintain a stop loss at 39220. Below 38900, continue with a trailing stop loss.