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The mood of the entire banking space, including NBFCs (non-banking financial institutions) has spoiled after the RBI’s monetary policy committee (MPC) conclusion. The RBI governor temporarily imposed an I-CRR (incremental-cash reserve ratio) of 10% on incremental deposits received from 19 May to 28 July 2023, to squeeze excess liquidity.
The dent has clearly been witnessed in the finance sector and consequently, the index fell for all succeeding sessions after the policy. With today’s fall of 0.34% to 19,586.1, the index has tanked for 5 straight sessions. Now the bigger question what can traders do from here?
Firstly, the trend is still negative. Hands down. There is so sign of relief visible on the chart as bears are aggressively initiating new short positions even at lower levels. The demand-supply equation is clearly in favor of the bears. Also, if you read my latest analysis on (link at the bottom), I have pointed out to a Head & Shoulders chart pattern on the daily time frame which is quite a bearish signal. As both these indices are broadly based on the same sector, the bearish view is prevalent in Fin as well.
However, a straight 5-session fall in an index makes it somewhat oversold. This rule does not apply to individual stocks as their volatility and the trending nature is on a different level, but the index which is an average of many stocks does not deviate from its mean very sharply. Hence, a bounce back from the lower levels can be expected.
For the early warning of a retracement, traders can watch out for today’s high on the chart, which is 19,610. If the index breaks it in the subsequent sessions, then a long trade can be initiated for a quick move till 19,800. Mean reversion traders can capture this 200-odd point rally.
Hopes for a very strong bounce back should not be kept as the trend is bearish. In case 19,800 is also surpassed, then a further upside till 20,100 can be expected, at max. This is the trend-deciding level, above which the trend will change to positive.
Those who like to go with the trend should avoid selling short at the current beaten down levels and wait for a rally. Any up move till the above-mentioned two resistance levels can be faded to go short.
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