VIX hits 19-mth high, flags caution for investors
As the volatility indicators hint more impulse swings on both sides, it is better to trade with a low position size and with hedging; A weekly close may give directional bias
A rally in PSU stocks lifted the market sentiment. Index stocks like Coal India, SBI, Powergrid, NTPC, and BPCL led Tuesday’s positive close. The Nifty is up by 27.05 points or 0.12 per cent and closed at 22,529.05 points. The Metal index is the top gainer with 3.88 per cent. The PSE and CPSE closed higher by 3.20 per cent and 2.10 per cent. The PSU bank index is up by 1.51 per cent. The Energy and Media indices are also higher by one per cent. The Private Bank index is the top loser with 0.59 per cent. AFMCG, Smallcap, Bank Nifty and FinNifty were down by 0.31 per cent to 0.45 per cent. The VIX is at 19-month high at 21.81.
The market breadth is negative as 1,563 declines and 1,136 advances. About 202 stocks hit a new 52-week high, and 149 stocks traded in the upper circuit. RVNL, BEL, HDFC Bank, and IRFC were the top trading counters on Tuesday in terms of value.
The Benchmark index, Nifty, closed higher with above-average volume. Once again, it closed at the mean level of the rising channel. The interesting fact is that the advance-decline ratio is negative. The volatility index, India VIX, is up by another 6.26 per cent to 21.81. This VIX level is the highest in the last 19 months. After a subdued negative opening, the index recovered and closed above 22,520 points, which is a crucial resistance. Though the index is closing higher, the VIX is showing a cautious approach for the market as the event risk is nearing. The Implied Volatility (IV) has also increased to 13.1 from 11.9 for the May series.
The 6thJune expiry IV is at the highest level of 23.8. This is the reason the Straddle Premium was almost at Rs1,000. This indicates a 4 per cent move is possible in the next two weeks. The momentum is positive for now. MACD shows a bullish bias. The RSI is flat at 59.06. As mentioned earlier, a close above 22520, along with RSI shifting its range above 60, will be positive and expect a big move on the upside. On an hourly chart, the MACD has given a bearish signal, which is a caution for aggressive longs. As the volatility indicators hint more impulse swings on both sides, it is better to trade with a low position size and with hedging. A weekly close will give us directional bias. Expect more consolidation below 22600.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
