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?