PSU Banks Are Set for a Rally

Hello viewers. Welcome to the Fast Profits Daily. Myself Brijesh Bhatia.

In the last video, we discussed Nifty and we highlighted that 16,057 has broken out and the gap area of 16,160-16,200 will act as a major support zone. We tested 16,165 and now we're back above 16,500 levels at all-time highs.

While the bullish momentum continues in the market, the one sector which is still struggling to outperform is the banking space. In this video we will be discussing about PSU banks.

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Coming back to the video now, the first chart is where I'm showing you the PSU bank index. I think it is a low risk reward trade. It is all set to form a bigger rally.

We have seen SBI right from 460-462 zone back towards 427-425 zone. Bank of Baroda corrected from a high level. PNB corrected from a high level. I think this is a pause to the bearish momentum and we might see the resumption in bullish momentum, though this video is not focused on stocks but the index.

If you look at the first chart over here on your screen, it is PSU bank index chart.

 

Now look at the rally. We have seen, right from the highs, it has corrected and we will look at the how it has underperformed against the private banks as well. But look at the confluence of support zones the index is at.

First, if you look at the support zone on the red line, right at 2,300, it has been acting as a strong support zone.

Second, 100-day exponential moving average placed right around 2,300 levels. It formed the hammer pattern over there and now showing a sign of reversal or revival of the bullish momentum I would say. If you look at these 100-day exponential moving average, it's been playing as a good support zone in this rally and this is very much important.

The third is the retracement level. If you look at the retracement level 38.2 Fibonacci retracement level, is again a strong retracement level when it comes to the bullish momentum.

So what does this signify? When the prices go higher, the rally is there and when prices retrace or prices see a pullback on the down side, the next leg of the rally is fast and furious and 38.2 is playing out very, very strong now.

Adding to the confluence of supports over here, there is a positive divergence on the RSI. So RSI is basically the strength of the momentum, and when you see positive divergence, the positive divergence are formed when prices don't hit the new lows or the prices are hitting the new low at the same levels, but the RSI here is forming the higher lows.

If you can't his momentum over here, similar lows were formed at somewhere around 2,300-2,310 and if you look at the RSI, it's forming the higher low. So again a positive divergence is playing out on the PSU index. So it is a sign of bullish momentum.

If I compare it with the private bank index, though since the start of the August we had hardly much trading days but still if you look at the trading days in August, 8-9 trading days, the PSU has been underperforming against the private banking.

If you look at private bank index, it's resisting around the similar level of 18,500-18,700 for quite long at the same time PSU was hitting lows.

 

But I think even now, even if you look at the private bank index it has been trading at a strong resistance zone like we have seen in Nifty where it was hitting the 15,850-15,920 then it broke out to 16,000, the key psychological level. There was no looking back for the Nifty.

Similarly in private banks here, only once it breaks 19,000 levels can it see a good upside. But here the PSUs are offering an excellent risk reward trade.

So I think once you focus here, considering the risk reward play, it's a very, very strong opportunity, rather than the private banks. I will look at private banks only above 19,000 levels because of the resistance zone 18,750-18,900, plus the psychological level of 19,000, these two are very, very crucial.

Though we have seen ICICI Bank rallying, HDFC Bank rallying, Kotak Bank rallying from the lower levels but still this private bank index is yet to break out and till this doesn't break out, the Bank Nifty won't be able to perform.

Though the pie of PSU is smaller than the private bank Nifty I still say that PSU banks are still offering a better risk-rewards than Bank Nifty or private banks.

So keep a watch on this PSU bank index and you can select stocks whatever you want. Considering the weightages, SBI is the highest weightage in the PSU Bank Index. So that could be better identically if you want to play the index. I think look for PSU banks at current point of time and then private banks only once the private bank index breaks 19,000. Then that would be a rally but here the PSU banks offers better risk-reward.

Signing off. Brijesh Bhatia. Thank you.