Bank Nifty forms a doji in weekly chart; is it a sign of caution or just a breather?

Bank Nifty went up by 2% last week after a massive 6% in the previous week. It registered the highest close after April this year. It formed a base around the level of 32200 zone with almost identical lows. It has also broken out of a falling wedge last week and got the confirmation last week of the breakout. The 61.8% retracement level of the previous downtrend is placed at level of 38134, which may be an immediate target and resistance. The 40 weekly moving average acted as support last week. The index also closed above the 50-week average, and the 20 periods RSI is above the 50 zone; this is a bullish set-up. The weekly MACD lines are approaching the zero line, and the histogram shows an increased bullish momentum.

But, on a daily chart, the RSI is in an extreme overbought condition. On Friday, the index has formed a hanging man candle, which shows the rally is a bit extended or exhausted. Monday will be a crucial day for the index. The PSU Bank index has formed a weekly doji candle, meanwhile on the daily chart it has got a confirmation for the bearish implications. The private bank index has formed a daily hanging man candle. As many indicators have reached an extreme over the bought condition, the Bank Nifty may enter the consolidation. Friday high of 37755 will be the resistance for now. On the downside, a close below the prior day's low is the first sign of counter-trend consolidation. On a lower time frame chart, there are hidden divergences visible. Stay cautiously positive about the sector for the week. Wait for good entry points and trade stocks specific.

The Strategy for the day

Bank Nifty was the underperformer last Friday. A move above 37555 is positive, and it can test 37689. Maintain a stop loss at 37485. Above 37689, continue with a trailing stop loss. But, a move below 37440 is negative, and it can test 37286. Maintain a stop loss at 37550. Below 37286, continue with a trailing stop loss.