India VIX Surge Signals Higher Volatility

The 23.6% retracement level of the recent upswing also acted as support. Now, 23,908-917 zone is very crucial to sustain the positive bias. For an upside, it must fill session’s gap with a strong bull candle and volume

The Indo-Pak war fears gripped the market, the equities traded nervously the whole day. The benchmark index, Nifty, declined by 265.80 points or 1.42 per cent and closed at 24,008 points. The Nifty India Defence index is the top gainer with 3.04 per cent. The PSU Bank, Consumer Durable, Media indices closed positively. On the flip side, the Realty index is the top loser with 2.38 per cent. The FinNifty, Services, Baanknifty, and Private bank indices down by over a per cent. All Other indices ended in negative zone. The India VIX is up by 2.98 per cent. The market breadth is negative as 1,738 declines and 1,065 advance. About 113 stocks hit a new 52-week low, and 110 stocks traded in the lower circuit. Mazdock, Tata Motors, BSE, BDL, and L&T were the top trading counters in terms of value.

The Nifty has formed a bearish engulfing candle on a weekly time frame. The weekly volumes were also higher than the previous week, indicating the distribution. The Nifty opened with a 338-point gap down as the border tensions were escalated last night. It formed a long upper shadow candle, is closed below the previous week’s low, and a crucial support of 24050. It tested almost 20 DMA. The index closed at the lower band of the last three weeks’ range. The 50-week average acted as support. The daily RSI declined into the neutral zone and closed below the prior low. The MACD has given a fresh bearish signal. The gaining momentum in India VIX shows more volatility in the coming days. The daily Bollinger bands began to contract is an indication of a mean reversion. In any case, if the index closes below the 20 DMA of 23908, which will be negative, and it can test the 50 DMA of 23253. The 23.6 per cent retracement level of the recent upswing also acted as support. Now, the 23908-917 zone is very crucial for the market to sustain the positive bias. For an upside, the index must fill session’s gap close with a strong bull candle and volume. Avoid highly leveraged positions for some period.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)