The Nifty Bank Index is in trouble, technical chart pattern shows

By:
on Oct 18, 2023
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  • The Nifty Index dropped sharply on Wednesday, continuing the recent sell-off.
  • The Reserve Bank of India fined ICICI Bank and Kotak Mahindra.
  • Chart analysis points to more Nifty Bank index weakness.

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The Nifty Bank index share price continued retreated on Wednesday as concerns about the banking industry continued. The index, which tracks the biggest banks in India, dropped to INR 44,000. It is hovering at the lowest level since September 1st. It has crashed by over 5.22% from the highest point this year.

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Indian banks have mostly done well this year, helped by the strong performance of the economy and higher interest rates. Higher rates lead to stronger net interest margin, which is a positive thing for banks. While the Reserve Bank of India (RBI) has paused hiking interest rates recently, the official cash rate stands at 6.50%, the highest level since 2019.

Indian banks have also been spared from the crisis in Western banks that led to the collapse of key companies like Signature Bank, Credit Suisse, and Silicon Valley Bank (SVB).

The main catalyst for the ongoing Nifty Bank index stock was a fine by the RBI against ICICI Bank and Kotak Mahindra. The bank issued a penalty of ₹ 12 crore 19 lakh against ICICI Bank and ₹3.95 crore against Kotak Mahindra. These fines were because the two major banks violated the conduct for bank directors and for fraud reporting.

ICICI Bank share price retreated by over 1% on Wednesday. It has also slumped by over 5% from the highest point this year. Similarly, Kotak Mahindra’s stock has collapsed by 14.50% from the YTD high. Other Indian banks like Yes Bank, SBI, and HDFC have also retreated from their YTD highs.

Nifty Bank index share price forecast

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Nifty Bank

Nifty Bank chart by TradingView

The Nifty Bank stock price has come under pressure in the past few weeks. The shares peaked at ₹46,290 in July and September. They have formed a double-top pattern, which is one of the most popular bearish signs in the market.

The stock is hovering slightly above the important support at ₹43,590, the lowest swing on August 7th. This price is also the neckline of the double-top pattern. Further, it has moved slightly below the 50-day and 200-day Arnaud Legoux Moving Average (ALMA).

These actions mean that the shares could continue falling in the near term. This view will be confirmed if the shares move below the neckline at ₹43,590. The stop-loss of this trade will happen if the stock moves above the 50 ALMA level of ₹44,800.

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