At Vtrender we have always believed that the banks play a critical role at market turns whether the context is intra day or swing.
The BankNifty will always set the move up before the Nifty catches up and recent brokerage reports from prominent houses testify that FII's are playing even bigger roles in BankNifty than ever before.
In the trading room at Vtrender, we monitor charts of the BankNifty and the Nifty side- by -side and this simple exercise gives great clue to market direction.
Like today, when we came into the market in the context of a balance zone as a background, it was easy to see BankNifty slip below Value area low first and break the previous day's range setting up the big move in the broader index.
Let's look at a slightly bigger perspective as the index will be called into play for the RBI event on Monday.
First the chart and then my two bits on why the market sold off after the inflation news.
From the lows of 9036 on 4th June to the recent highs at 10170 in the BankNifty future, the index has risen over a 1000 points and for the first time today in this run-up we saw value created lower today.
Secondly today's move off the POC of yesterday shows a decisive rejection of yesterday's value
And last but not the least, the entire run up has the highest volume at 10050-10080.
Put it together and you can see that the seller is back in the banknifty. However it is not yet confirmed that these are strong hands at play and only a bigger push below the 9760 level will confirm that the seller has taken over the short term trend .
Ahead of the news on Monday, it is difficult to see large market participants committing themselves in a big way and the likely possibility is that we may rotate back up tomorrow if there is no seller at the open.
The test for both buyers and sellers will come at the 10080 level if we do get back there again.
I don't like to react to news, as everything eventually builds up in the price, but market sentiment towards news plays a big role in positioning thee days.
After the data was out on inflation, the market grasped that there would not be a big rate cut on Monday as inflation has not cooled down in the past there months. The Governor is caught between the devil and the dead sea and whilst the consensus is that there will be a rate cut, it cannot be claimed for certain in light of the policy adopted from last year.
The move up of 1000 points on low volumes has been pure short covering in the BankNifty on the expectation that there would be a rate cut.on Monday. Anything other wise would send the index down in a hurry.
After todays' down move odds are high that it would pass off as a non-event. But we'll leave that for Monday.