Bulls have an upper hand, but overbought condition indicates it's time to follow trailing stoploss!

Bank Nifty advanced more than 1% on Monday and it managed to close above the previous day's high and near the day's high.

The index has touched the levels which were last seen in mid-April. With this, it negated the bearish implications of the prior day's hanging man candle pattern. The 78.6% retracement level of the prior downtrend is at 38134, which may be the immediate target. The index rallied by 17.5% or 5650 points from the June 17 low. The RSI has reached above 76 and is in an extremely overbought condition. The prior highs were limited to approx 70 zone only. The shorter time frame moving average 5EMA support is placed at 37311. As long as this support holds, there is no chance of imitating the short positions. The MACD line is almost at the October 2021 high. Currently, the index is 5.93% above the 20DMA and 8.91% above the 50DMA. There are no negative divergences for now. But, there are signs of losing momentum. The upcoming RBI's monetary policy may be a trigger point for the sector. A mammoth hike in the interest rate by the RBI which could be beyond expectation could lead to a serious profit booking. Before the event, it is better to have strict trailing stop loss to protect the profits.

Strategy for the day

The Bank Nifty closed near the day's high and it has closed at levels which were last seen in mid-April. Also, it has managed to negate the bearish implications of the previous day's candlestick pattern. Hence, a move above 37925 is positive, and it can test 38134. Maintain a stop loss at 37870. Above 38134, continue with a trailing stop loss. On an intraday basis, a move below 37762 is negative, and it can test 37462. Maintain a stop loss at 37874.