17 September 2009

Bank Nifty : Powering Ahead

After another good day at the markets for the major indices, lets take a look at one of their major contributor; the Banks. I have attached a 3 month chart below, but if you look at its 9 month chart (to include its March 6 lows) I am sure you would be cursing yourself for not having more banks in your portfolio. It has moved from 3300 to 8400 in this period, a phenomenal rise for the symbol of India's growth story.

What we see in the chart is something which is pointing towards another leg of rally. We see a very clear breakout from the ascending triangle formation between July and early September. The breakout points to an ultimate target of 9000 while currently its just under 8400. So we can be bullish on it for some more time.

All the indicators in the chart paint quite a positive picture. The only concern for me right now is that it has become overheated. We should see some correction, which should be healthy and giving opportunity for more participants to get in.

As I am particularly interested in Nifty, and banks being one of the major sector contributing around 17% it would be interesting to see where Nifty goes if the Bank Nifty reaches its target of 9000. A simple calculation which says 600 points in Bank Nifty is roughly 350 points in Nifty, just taking there proportionate levels and assuming both move in perfect correlation it gives Nifty a target of 5300 on Nifty! Of course this is the crudest form of calculation nonetheless it tells us that we are going higher from here if things move as they have been.


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