Volatility may continue for next 2 sessions

The equities recovered from the opening lows and gained half per cent on derivative expiry trades. The Nifty closed at 17577.50 with an 86.80 points gain. Nifty IT index declined by 1.77 per cent. The Auto, Metal, and Banking sectors led the recovery on Tuesday. Nifty Auto and Metal indices are up by 1.81 per cent and 1.42 per cent. The broader indices, Nifty Midcap-100 and Smallcap-100 indices, up by 1.17 per cent and 1.14 per cent, respectively. All other indices gained less than a per cent. The VIX is marginally higher. The Market breadth is positive as 1205 advances and 650 declines. About 53 stocks hit a new 52-week high, and 74 stocks traded in the upper circuit.

The Nifty opened below the 20DMA and recovered the initial losses. It also closed above the 13EMA. Most of the stocks registered open low candles on Tuesday and sustained above the initial lows. It formed a lower low and lower high candle, but closed with decent gains. The recovery is due to short-covering and rollovers. Two days before the expiry, data shows that the rollovers are less than last month, indicating the trend reversal. Traders are closing positions and not getting into the positions.

Next two days, the Nifty may experience volatile moves. On Tuesday, it faced resistance at the 38.2 per cent retracement level of the last three days' swing. During the next two days, it may also retrace towards 62 per cent, which is at 17745. The previous day's high 17690-710 zone may act as a resistance. Though the Nifty closed positively, the MACD histogram shows an increased bearish momentum. The RSI took support at the prior resistance and support. Any decline below 60, the Nifty will resume the down move.

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