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Momentum remains negative despite bounce back

Traders should remain cautious and use proper hedges and not trade without stop loss

Momentum remains negative despite bounce back

Positive market breadth

  • 1,694 advances
  • 833 declines
  • 237 stocks hit a new 52-wk high
  • 162 stocks in upper circuit
  • RSI in neutral zone

A day before the event (Budget), equities bounced back into the green. The Nifty gained by 203.60 points, or 0.95 per cent, and closed at 21725.70. All the sectors participated in Wednesday’s rally. The Pharma, Realty, and the PSU Bank indices gained over 2.25 per cent. The SmallCap-100 also gained by 2.25 per cent. All other sectoral indices were advanced by 0.35 per cent to two per cent. The India VIX is down by 0.34 per cent to 16.04. The market breadth is positive as 1694 advances and 833 declines. About 237 stocks hit a new 52-week high, and 162 stocks traded in the upper circuit. HDFC Bank, L&T, ICICI Bank, and Tata Motors were the top trading counters on Wednesday in terms of value.

The benchmark index, the Nifty, bounced above the 20DMA again. It has been oscillating around the 20DMA for the last three days, and its trading range has also increased. The volumes were higher than the last two days, indicating the buying interest was generated before the event risk. For today, the 21429-831 range will be crucial for the directional move. On Wednesday the opening session was very strong, but the afternoon session was limited to a range. For the last ten days, the index has been trading in the 21137-21834 range with more downside ticks. But, the volumes have been relatively higher in the last month.

This shows a strong accumulation is happening at the lower levels. If the Vote-on-Account Budget triggers some positive statements, we may see a breakout above the 21834 zone. Though it is a Vote-on-Account Budget, expect a higher volatility today. Keep in mind that it is also a weekly expiry. The ATM Implied Volatility (IV) for today’s expiration is 29.1, which is very high. The Straddle premium is Rs263. In such an environment, always hedging the positions will be the right strategy. The momentum is still negative. The RSI is at 55.59, in the neutral zone. With three major events tomorrow, i.e. the Budget, derivative expiry and FOMC policy outcome, traders should remain cautious and use proper hedges and not trade without stop loss.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)

T Brahmachary
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