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Nifty PSU Bank, Nifty Private Bank overbought on charts: How to trade?

The identified consolidation range for Nifty PSU Bank is between 5,864 and 5,581 and a close above or below this range would serve as a trigger, says Ravi Nathani

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Illustration: Binay Sinha

Ravi Nathani Mumbai

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Navigating Nifty Private Bank Index Amidst Overbought Conditions
The Nifty Private Bank Index, currently standing at 24,785.35, exhibits a positive short-term and near-term trend. However, the sharp rally in both near and short-term durations has pushed the index into an overbought zone on charts.

Technical indicators, such as RSI and Stochastic, signal this overbought condition, paving the way for an anticipated consolidation phase with potential selling pressure on the rise, suggesting a negative bias.

Given this scenario, the recommended trading strategy is to capitalize on the existing positive momentum by booking profits on upward movements. Traders are advised to transition to a cash position temporarily, awaiting opportune moments for re-entry.

The strategy aligns with the anticipation of the index retracing towards crucial support levels at 24,236, 23,781, and 23,416.

Concurrently, resistance is anticipated between the levels of 24,980 and 25,236, with near-term consolidation expected in the range of 24,981 to 24,610.

Traders and investors are urged to exercise caution and consider profit-taking strategies when the index approaches or trades within the resistance zone.

The suggested approach involves patiently waiting for favorable market conditions and buying opportunities as the index nears the aforementioned support levels.

In essence, this adaptive trading strategy acknowledges the current overbought conditions, enabling traders and investors to strategically navigate the Nifty Private Bank Index.

By booking profits in the overbought scenario and waiting for suitable re-entry points, market participants can optimize their positions while managing risks associated with potential corrections in the near term.

Strategic Positioning in Nifty PSU Banks Index Amid Overbought Conditions

The Nifty PSU Banks Index, currently positioned at 5,720.35, is displaying signs of being overbought on charts. This overbought status indicates a likelihood of consolidation within a specific range, with the potential for a breakout or breakdown depending on the violation of the said range.

The identified consolidation range is between 5,864 and 5,581 and a close above or below this range would serve as a trigger, dictating the subsequent market direction.

The optimal trading strategy in such a scenario involves adopting a patient approach. Traders are advised to await a clear breakout or breakdown before initiating new positions.

This strategy aligns with the understanding that significant price movements are often sparked by breaches of established ranges. Considering the recent short-term rally in the index, traders are also encouraged to exercise caution.

Booking profits on upward movements is recommended, given the potential for selling pressure during rallies.

This prudent approach allows market participants to secure gains in the existing market conditions, preparing for potential shifts in momentum.

In summary, the strategic positioning for the Nifty PSU Banks Index involves a watchful stance with an emphasis on waiting for a decisive breakout or breakdown.

Traders are urged to be discerning in booking profits during rallies, recognizing the possibility of consolidation and the subsequent triggers that may dictate the index's near-term trajectory.

Disclaimer: Ravi Nathani is an independent technical analyst. He does not hold any positions in the Indices mentioned above and this is not an offer or solicitation for the purchase or sale of any security. It should not be construed as a recommendation to purchase or sell such securities.

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First Published: Dec 19 2023 | 6:55 AM IST

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