Published on: June 11, 2024
The Bank Nifty, officially known as the Nifty Bank index, is a prominent sectoral index in the Indian stock market. It represents the performance of the banking sector, including both public and private sector banks. Created by India’s National Stock Exchange (NSE), the index comprises the most liquid and large-cap banking stocks listed on the NSE. It serves as a benchmark for investors and traders looking to gauge the health and performance of the Indian banking industry.
Recently, Bank Nifty hit a new all-time high of 51,133, only to reverse on the election result day, hitting a low of 46,077. Despite reclaiming the 50,000 mark by the end of the week, the chart signals an exhaustion phase as per Heikin Ashi’s chart.
The Heikin Ashi Chart
The Heikin Ashi (HA) chart is a popular tool among technical analysts for identifying trends and potential reversals in the market. Unlike traditional candlestick charts, which use the actual prices of the asset, Heikin Ashi charts employ a modified formula that considers the average price over a period. This results in smoother and more visually interpretable trends.
Using these modified calculations, Heikin Ashi charts filter out some of the noise, making it easier to identify the underlying trend. Bullish candles are typically represented as blue, while bearish candles are red, similar to traditional candlestick charts, but they show trends more clearly and reduce the occurrence of false signals.
Bank Nifty Weekly Heikin Ashi
Looking at the Heikin Ashi weekly chart of Bank Nifty, we observe that the bullish trend appears to be losing steam as the bullish Heikin Ashi candles lack follow-up momentum, a sign of exhaustion. This is a critical sign, as long, consecutive bullish candles often indicate a solid upward trend.
Interestingly, within this bullish trend, we have witnessed the appearance of bearish Heikin Ashi candles. Typically, bearish candles within a bullish trend might indicate a potential reversal; however, in this case, the bears were unable to break the lows of the candles, which is necessary to confirm a reversal. This suggests that while bearish pressure exists, it has not been strong enough to change the overall trend decisively.
The lack of follow-through from both the bulls and the bears creates a scenario of indecision and potential exhaustion. Despite the index being close to its all-time high, the weakening momentum suggests that the current trend might run out of steam.
A bullish weekly Heikin Ashi close with a strong trending candle above 51,500 may confirm the resumption of the upward trend. Until such a confirmation is observed, the trend appears to be in an exhaustion phase.
Ratio Chart Analysis: Bank Nifty vs Nifty 50
To further understand the performance dynamics of Bank Nifty, it is insightful to look at the ratio chart of Bank Nifty to Nifty 50. This ratio chart helps analyse the relative strength or weakness of Bank Nifty compared to the broader market represented by Nifty 50.
A ratio chart is a comparative analysis tool used to evaluate the performance of one security relative to another. It is constructed by dividing the price of one security by another. In this case, the Bank Nifty/Nifty 50 ratio chart is created by dividing the Bank Nifty index by the Nifty 50 index. This provides a visual representation of whether Bank Nifty is outperforming or underperforming the broader market.
BankNifty/Nifty50 Ratio Chart
Since 2023, the ratio has been trending southwards, indicating an underperformance of Bank Nifty relative to Nifty 50. This long-term downtrend suggests that the banking sector has generally lagged behind the broader market regarding returns.
In the last couple of months, Bank Nifty began to show signs of outperformance, as indicated by an upward movement in the ratio chart. This positive development suggested that the banking sector was gaining strength relative to the broader market. However, the recent reversal and southward movement from the previous high on the ratio chart signals that this outperformance was short-lived.
The resumption of the downward trend in the ratio chart indicates that Bank Nifty is again underperforming relative to Nifty 50. This could be due to investor profit-taking, sector-specific concerns, or broader market dynamics.
In conclusion, the Bank Nifty index has shown signs of exhaustion following its recent all-time high. The analysis using Heikin Ashi charts indicates a weakening bullish momentum, with the appearance of bearish candles within the bullish trend and a lack of decisive follow-through from both bulls and bears. This suggests that the current trend may be running out of steam.
Additionally, the ratio chart of Bank Nifty/Nifty 50 shows that the banking sector has been underperforming the broader market since 2023. Although there was a brief period of outperformance in recent months, the recent reversal on the ratio chart signals a resumption of Bank Nifty’s underperformance.
Investors and traders should closely monitor the Heikin Ashi weekly chart for a potential bullish close above 51,500, which may confirm the resumption of the upward trend. Until then, caution is warranted as the current trend appears to be exhaustion. The broader market dynamics and sector-specific factors will continue to play a crucial role in determining the future performance of Bank Nifty.
