Nifty Bank Outlook: Index under pressure; book profits in PSU bank stocks, wait for better entry levels

Domestic stocks were gripped by high volatility this past week, following a heavy selloff in global markets. Nifty Bank made a high of 43,614.65, but ended the week at 41668.05, losing 3.59 per cent.
 
At present, the index has moved below the support of 50-DMA that indicates short term weakness ahead. The immediate support for the index has shifted towards 40,600-40,000 levels. The resistance for the index is placed at 43,000.
 
A momentum indicator RSI and the MACD indicator now inclined on the negative side.
 
Among private banks, we expect Kotak Mahindra Bank would be a frontrunner. While among PSU banks, SBI can still hold the command.
 
In the options segment, Nifty Bank December futures traded at a premium of 78.5 points.
 
Nifty Bank Put options distribution shows that the 40,000 strike has the highest open interest (OI) concentration, which may act as support for the current expiry. Nifty Bank Call strike at 43,000 witnessed significant OI concentrations and may act as resistance for the current expiry. 
 
On the weekly chart, the index has formed a bearish Engulfing Pattern, indicating more selloff expected in the coming week. However, a sharp pullback cannot be ruled out.
 
PSU bank stocks are losing grip. It would be a good time to book profits and wait for entry at good levels.
 
Overall, the banking sector remained under pressure after the Fed meeting and RBI MPC policy. Next week, there could be more triggers in private banking space, as OI data indicates more call option writing at higher strikes.
 
The primary trend seems to have been exhausted. Traders must be working with option strategies to counter volatility. Short-term investors can accumulate quality banking stock at these levels.
 
(Bagadia is Executive Director at Choice Broking)