Financial Services Joining the Race? Maybe...

JC Parets
September 3, 2021

This week, Nifty Financial Services broke out to claim an all-time high after forming a six-month base. This sector has been taking a breather for some time now, but we are finally able to see signs of improvement.

Across the world, when strong market rallies come through, they come in unison with Financials. So if this current rally has to continue, we need the support of this sector. Are we going to get that though? Let's see what the charts are saying.

Here is Nifty Financial Services on a monthly timeframe. We do see a resolution of the trend. And prior to that, did you notice something interesting? Something we like to see in particular?

The price was consolidating above the Fibonacci level. That's a good sign. Always!

So now that we have this resolution in trend, the next level we're tracking is 23,350.

Keep in mind, this is a MONTHLY chart. Hence, think 23,350 in the months ahead, not weeks.

We wanted to see if we found any specific high correlation points between Finserv and Nifty 50. What we did see was that they were basically the same trend. Take a look for yourself. While Nifty50 broke out above its 2021 highs much earlier, Financials did their catching up too!

As can be seen from the chart below, Financial Services has a positive correlation with Nifty 50. So in a scenario where Nifty is heading higher, it has to be with the support of Financial Services.

For the sake of comparison and analysis, we wanted to compare India's Financials to US Financials. And this is what we saw. From an Intermarket perspective, both Nifty Financial and US Financials ($XLF) are in a primary uptrend. What we also see is that Nifty Financial services act as a leading indicator when compared to the XLF. We can see that play out during the most recent peak in 2021 post which the market went into slumber. We saw that change in trend in India much before it appeared in XLF.

So now that we see a breakout in Nifty Financial Services, can we expect a breakout soon in XLF too? My guess is, yes. If the current move is in place, we may see a breakout real soon. Let's keep an eye out for that one, shall we?

We're talking about the Financials supporting the current market move etc etc. But, for this to be a sustained rally from Financials, we also need the laggards to participate. And we know that it hasn't been the case. Take a look at the chart below. While Nifty Bank is closer to its breakout point, PSU banks have been an absolute underperformer. And that will have to change. And that is where the problem lies. So this is our boulder.

Nifty Bank and PSU Bank Index are yet to close above their February '21 High. The importance of this can't be overstated. For the current trend to persist we need a breakout above the Feb'21 highs.

So this was the big picture talk and how it could pan out. But are there any stocks that we could track in this space?

Sure there are! Let's dig a little deeper and see what's going on under the hood in this index.

One of the leading stocks within Financials has been Bajaj Finserv. Here, an overbought momentum reading confirmed the move, indicating increasing aggressiveness on the buyers' side.

We want to stay bullish if we're above 13,636  with a target of 19,600.

On similar lines, Bajaj Finance continues to resolve higher. Keep in mind, this is the daily chart. And the reason we shared the daily chart is that the week hasn't come to an end. Hence, it would be incorrect to share an incomplete weekly candlestick pattern in order to confirm a particular move with you, our dear readers.

We're bullish above 6,864, with a target near 10,000.

Indian Energy Exchange has made regular appearances on our conference calls. Our next target is 691, with a risk management level of 472.

ICICI Securities Ltd. has moved past its resistance of 723 and is on the way to the target! After halting at the key Fibonacci resistance for quite some time, the price has resumed its move.

We are bullish only above the level of 723, with a target near 1,044.

SBI Life has been an outperformer from the Insurance industry group. It has broken above the multi-year base along with the indicator moving into bullish momentum territory.

We are bullish above the level of 1,030, with a target near 1,345.

Shriram City Union Finance has moved above the confluence of the crucial resistance and 61.8% Fibonacci retracement level. We are bullish above the level of 1,858, with a target near 2,616.

So this was our view on the Financial Services sector that has been moving into a positive zone this week. Will these trends play out the way we think? We can only wait and watch. Until then, we know what to watch out for in case of confirmation or failure of the moves mentioned above.

What are your thoughts on Financial Services? How much importance do you give to it?

We'd be happy to hear fromyou!

Allstarcharts Team

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