02 Feb ’24 — Nifty Breaks Out and then Breaks Down — Nifty & BankNifty PostMortem Analysis
Nifty Analysis — Stance Neutral ➡️
Nifty does 2 swings today, the first one to cut through the resistance of 21913 and convincingly reach the ATH levels. And the 2nd swing to breach the same support only to close back in the neutral territory. The moment we broke out from the resistance level — we changed our stance from neutral to bullish. And then as the reversal came in, our stop loss was hit and we had to backtrack our stance to neutral again. The morning part — was totally expected, we were in a 40-day range and then a break was due. But the 2nd half of the day — didn’t see that coming. Surprisingly we closed the day with a gain of 156 points ~ 0.72% while BankNifty fell 217 points ~ -0.47%. We still believe, BankNifty is the torch bearer and has to align itself in the same direction as Nifty50 for a strong trend momentum.
There are at least half a dozen candlestick patterns that could be drawn in this chart. We see a strong double top right at the ATHs and today’s top right at the lower channel line which would have acted as a resistance. The buildup from 24th Jan to today is a Double bottom (W) pattern and a small bullish trendline. All of which leads to confusion on what gets the highest priority. We would like to continue with the neutral stance for Monday with a slight advantage to the bullish side.
BankNifty Analysis — Stance Neutral ➡️
BankNifty surprises everyone today, the meltdown first started in the banks and persisted in the banks. Nifty was near the ATH — understandable, but BankNifty is a long way from its top — so the fear of highs could not be the reason for the fall today. The price action showed something deeper is troubling the banks — is it the PayTM & RBI tussle to be blamed? Or are the unsecured short-term small-amount loans turning RED?
Anyway, the big-boys know it better than us and soon we will all know. Unfortunately from a technical analysis perspective, we cannot plan for these events. Today’s price action shows a big RED, but a week’s data looks neutral.
Just when BN was trying to recover from the blow on 17th and 23rd Jan, we got the RED today. The recovery from 25th Jan via bouncing off the support looked promising and when the 45399 resistance was cut through — our hopes got pinned for a bullish comeback. The charts however still show neutral trade possibilities and the support of 45399 and resistance of 47465 as the first hurdle for a directional trend.
Our BankNifty algo trades ended today with a minor loss of 52 rupees. It has 3 lots under test. Due to regulatory challenges, I am not posting my live trading results — instead posting the Forward Testing MTM graph for a similar strategy.
