Spike In Volatility Likely Ahead Of Monthly Expiry

Below the previous week’s low of 24462, it will give weaker signals. Above this 25307 is nearest target. It may not breach 24300-378 zone and 25100-310 will be a Herculean task to be violated. If it trades between 24300-25100, stay with a neutral bias

During the previous week, the equity indices consolidate in the range. The benchmark indices declined just 166.65 points or 0.67 per cent. The BSE Sensex is down by 0.74 per cent. The Midcap-100 was down by 0.65 per cent, and the Smallcap-100 gained by 0.47 per cent. On the sectoral front, the Nifty Realty index is the top gainer with 2.66 per cent, followed by Metal with 0.52 per cent. On the flipside, the Consumer Durables index is down by 2.16 per cent. and Auto is declined by 1.83 per cent. The IT declined by 1.50 per cent. The India VIX is up by 4.40 per cent to 17.28. The market breadth is mostly positive. The FIIs bought Rs.12,191.61 crore this month. The DIIs bought Rs.34,497.56 crore worth of equities. The benchmark index took a breather after a thousand-point rally in the previous week. It consolidated within the previous week’s range and formed an inside bar. The Nifty took support at the 20 DMA and bounced. The trend strength is still stronger, as the index did not violate the prior week’s low and key support levels. The counter-trend consolidations are common after an impulse move.

After last Thursday’s massive 395-point gain, the volumes are declining. Interestingly, the down days attracted more volume than the up days. It registered two distribution days. Currently, the Nifty holds six distribution days, which is on the higher side. With this number of distribution days, if the index trades below key supports or the 50 DMA, it would confirm a downtrend. But it is trading above all key short and long-term averages. The 20 and 50 DMAs are in the uptrend, which shows the trend is not in danger.

If it declines below the previous week’s low of 24462, it will give weaker signals. As the monthly expiry is approaching, expect a spike in volatility. For a strong bullish bias to emerge, the Nifty must move above 25116 and close decisively. Above this the 25307 is the nearest target. The Nifty may not breach the 24300-378 zone support but may trade with high volatility. In any case, the Nifty closes below this zone, the 50-week average will act as strong support.

The RSI is in the neutral zone in all time frames. The Weekly MACD line is above the zero line. The market may enter into a time correction, as long as there is no leg of trending moves. The 25100-310 will be a Herculean task to be violated. As long as the Nifty trades between the 24300-25100 range, stay with a neutral bias. The sector and stock rotation will be in focus. Focus on the stronger relative strength and momentum stocks. All the profitable trades must be protected with strict stop losses and keep leveraged positions should be kept at modest levels. Stay cautiously optimistic next week.

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