Nifty PSU Bank Retraces 61.8%: Will It Reclaim Its All-Time High?

One of the most favored sectors ahead of the general election outcome was the Nifty PSU Bank. In 2022, the Nifty PSU Bank surged by about 71%, followed by a 32.3% increase in 2023. As of 2024, it is up by a staggering 30%. The index marked a fresh all-time high and crossed the milestone level of 8,000 after the exit polls announcement. However, as the actual vote counting began, the index took a U-turn and plunged heavily by 15% in a single trading session. The sole reason for this sharp decline was the fear among market participants about the fate of PSU Banking stocks if the Modi 3.0 government does not materialize.

Recovery Amidst Uncertainty

The PSU Bank index has managed to recover about 15% from its June 4 lows, but the pace of recovery has not been as swift as one might have expected. This is evident as the index took about five trading sessions to retrace only 61.8% of the prior fall from the high of 8,053.30 to the low of 6,443.85. On Wednesday, the index was among the top-performing sectors of the day, rallying by 1.16%. With this rally, it managed to cross above the 20-day moving average (DMA), which is an important indicator for short-term market participants. Despite this, the index has only retraced 61.8% of the fall.

The Significance of the 61.8% Retracement Level

A 61.8% retracement often acts as a strong resistance level. Traders expect that the price might struggle to rise above this level because many investors who bought the stock at higher prices during the downturn may sell to recoup their losses, creating selling pressure. If the stock manages to break above the 61.8% retracement level, it may signal a potential reversal of the downtrend, indicating bullish momentum. Conversely, if the stock fails to break through this level, it may resume its downward trend.

Technical Indicators: RSI and MACD

Looking at the technical indicators, the daily 14-period Relative Strength Index (RSI) has generated a bullish signal by moving above its nine-period average. The Moving Average Convergence Divergence (MACD) has also seen a bullish crossover. These signals suggest that there is potential for further upward movement. However, the index must cross above the 61.8% retracement level and reclaim its previous all-time high. The importance of the 61.8% retracement level cannot be overstated for the Nifty PSU Bank index.

Conclusion

The Nifty PSU Bank index is at a critical juncture. While it has shown signs of recovery, the 61.8% retracement level poses a significant challenge. The coming days will be crucial in determining whether the index can break through this resistance and continue its upward trajectory or if it will face renewed downward pressure. Market participants will be closely watching the performance of the index. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.