Banknifty is on cloud nine; overbought conditions might trigger a consolidation!

The Banknifty closed with a gain of nearly 1.5% on Thursday and it managed to close above the April major swing high. On the daily chart it has formed a bullish candle with a gap as a result it has negated the bearish implications of the prior trading session Doji candle formation. It sustained the gap-opening gains and close near the high point of the day. The RSI has also reached 80 zone. On a 1.5% gain day, the MACD histogram has declined, which is a sign of momentum loss. But, still, there are no weak signs. It only traded in sideways during the day. Overbought conditions are still persists. The PSU banking stocks led the rally on Thursday. It has formed a bullish bar in the Elder impulse system. Currently, the index is trading 5.21% above the 20DMA, and the Bollinger bands suggest it still has an upside potential. It has just closed above the 20-period TEMA. Interestingly, the RRG relative momentum is still below 100, and the Relative strength is declining. The full and fast stochastics are at an extreme band. For now, there are no weaker signs. Only a move below prior day low level of 38648 is negative. Otherwise, continue with the trend for a target of 39424. 

The Strategy for the day 

After opening with a gap up, the Banknifty traded sideways in the afternoon session. It has formed an indecisive bar in the last hour, this could be due to weekly expiry. A move above the level of 38890 is positive, and it can test the level of 39021. Maintain a stop loss at 38790. Above 39021, continue with a trialing stop loss. But, a move below 38648 is negative, and it can test 38400. Maintain a stop loss at 38890. Below 38400, continue with a trailing stop loss.