24 Jul ’23 Post Mortem on Nifty & BankNifty | Bearish trend continuation for the 2nd day
Nifty Analysis
I was quite happy to see the last 45 to 60mts of trade happening in the direction of the trend. For days unknown we used to have dip buyers who come in at 14.30 to 15.00 and then change the dynamics all together.
If you notice we had a good downtrending pattern developing on the 5mts TF. Ever since we broke down from 21st July, bears were able to form a lower low & lower high till now. Whether it replicates on the higher time frames only time will tell.
We had 3 important price actions today
- Gap down open and then a gap-closing rally till 10.30 wherein we recovered 79pts
- Leg1 of downfall from 10.40 to 11.55 wherein we shaved off 113pts
- Leg2 of downfall from 14.05 to close where we lost 118pts
I was quite worried when the market started to recover from 12.00 to 14.00 — because if this swing high goes above the day’s range then I was almost sure the dip buyers will do the rest in the closing hour. Fortunately bears had a good day today, after a long long gap probably. Pushing down the prices on Nifty & Banknifty has been pretty difficult for the last 1 year!
Bearish TrendLine
Ideally the trend line should start from the point where we fell, but with the data so far it’s hard to connect the dots. Once the pattern starts building up for a few more days — we will re-draw it with more accuracy.
As it stands if Nifty keeps making lower lows and lower highs then its easy for bears to push down the prices. If we negate that pattern either with a news flow or event or even a reluctance to fall — we will lose the momentum to the bulls! We will continue going short till the swing high is not violated.
BankNifty Analysis
I had a long call on banknifty and a short call on nifty50. All of us know very well that the probability of that happening is quite rare. Well we go as per what the chart says, banknifty showed strength on the last working day even when nifty was falling.
Today also banknifty was staying strong until the 286pt fall from 11.30 to 11.55 — just after this price move weak links started appearing among the component stocks. The main culprit for today’s fall was Kotak bank that fell 3.7%. I would really say this could be a start!
When HDFCBK came with results, we discussed the possibility of NPAs rising. In fact a rising NPA in an interest rate rising regime poses the same danger as an avalanche. When cracks start appearing — the breaks are going to be profound. Currently most of the banks will have good quarterly results mainly because they would have pushed the rate hike to their credit accounts (loans). The real test comes in when these loans go bad (default).
I am not inclined to go short on banknifty yet, would like to see the price action for 2 more days before deciding. 45830 levels also might offer a small support — if this breaks then it might be interesting to look out for bearish opportunities. During the closing hour there was a small hint that CALL writers are getting interested — this might help tip the balance to the bearish side!
PS: The trades taken are no recommendation, blindly following them may cause more harm than good — read full disclaimer here