Bank Nifty breaks out of key chart resistances

Massive upside potential as the Index looks to target 31k in the next few months

A little more than a year back, in March 2017 to be precise, the Bank Nifty broke out of a key continuation chart pattern at 20,500 with a solid upside target of around 6900 points, which was realized in late January this year.
In mid-July, Bank Nifty again broke out of a similar chart pattern when it settled above 26950. Although the targets this time around are not as immense when compared to the previous occasion, still, a 4000 points gain in the Index is something traders would categorically relish and that’s exactly where the Bank Index could be headed in the next few months.

So, what would be a good entry in the Bank Index which settled at 28,257 on 21st August; mid-way between near-term supports at 28,100 and resistances at 28,400?
One strategy would be to enter at the supports with a one percent stop below it. But, traders sceptical that the Index may not test the levels in the near- term can look for option strategies with limited downside risk in the event the supports are taken out and unlimited upside gains if the Bank Index continues to rally. The other strategy would be to go long if the Index settles above near- term resistances at 28,400 or scales the levels by at least a percent with stops placed about a percent below 28,400.

Coming to the targets, Bank Nifty should extend its gains to 29,600 in the near- term with medium-term targets for the Index coming in around 30,650-950. On the flip side, if the Index settles below 27,300, all bets are off.

Traders looking to invest in banking stocks have a lot of options to choose from. India’s largest public sector bank, SBI for instance has key resistances around ₹325, a close above which the stock can rally by about 10 percent in quick time. Likewise, there are opportunities in some of the other banking names, mostly the beaten down ones which could outperform the broad Index in the next few months. A quick stock check and you should certainly find them.

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