BankNifty has strong resistance at the level of 40208!

On Thursday, the Banknifty recovered more than 200 points from the day's low and settled above the important psychological mark of 40000. On the daily chart, it had formed a candle which resembles to a hammer candle pattern. It filled Tuesday's gap. On the weekly expiry day, along with the price decline, open interest also declined and which indicates that profit booking was done. Interesting observation is that the 20DMA has moved below the 50DMA and trajectory of the 20DMA is downwards sloping, which is not a positive takeaway. Furthermore, the Bollinger bands were narrowing further, indicating that the upside was limited. The index closed below the previous day's low is yet another negative sign. The Stochastic oscillator has given a fresh sell signal in the extreme over-bought zone. The index took support at the moving average ribbon on an hourly chart. 34 EMA acted as strong support for the day. A close below the level of 39925 will be negative for the index. Below this level, it can test the level of 39528. But a close above Thursday's high of 40208 is positive and index should extended it's gain. We may see some profit booking ahead of the long weekend. Hence, play with cautious approach and don't take over leveraged position.

The Strategy for the day

The Banknifty staged a smart recovery from the days low and it closed above the important psychological level of 40000. Despite the recovery from the days low, it closed below the prior trading session low. Going forward, a move above the level of 40168 is positive, and it can test the level of 40404. Maintain a stop loss at the level of 40030. Above the level of 40404, continue with a trailing stop loss. But, a move below the level of 39955 is negative, and it can test the level of 39800. Maintain a stop loss at the level of 40030.