Avoid derivatives for next 2-3 weeks

On a weekly chart, the Nifty is trading within the 22,023-22,514 zone on a closing basis (line chart); A breakout on either side of the zone, on a weekly closing basis, will give an impulse move in the direction of the breakout; For the last 11 weeks, the index is closing within this range

On a highly volatile week, the equity frontline indices almost erased the previous week’s losses. The Nifty rallied by 446.80 points or 2.03 per cent. The BSE Sensex is up by 1.85 per cent. The Midcap index closed at a new high and above last week’s high. It rallied by 4.72 per cent. The Small-cap index is up by 5.61 per cent. Only the FMCG index is down by just 0.11 per cent. All the other sectoral indices closed higher. The Nifty Realty index is the top gainer with 7.43 per cent, followed by the Metal index with 7.11 per cent. The Volatility index, India VIX, is up by 11.11 per cent to 20.52. The FIIs sold Rs35,532.47 crore, and the DIIs bought Rs33,973.05 crore worth of equities. The Advance-Decline ratio is positive.

The week commenced with a significant recovery of 310 points on Monday, following the breach of the rising channel trend line support. This recovery was accompanied by a notable increase of over 11 per cent in the VIX. The formation of a hammer candle at the support line and the subsequent reversal signal were key indicators of a potential market turnaround. This was further confirmed on Thursday, when a similar candle was formed amidst more volatile moves. The market witnessed at least three over 200-point swings in a day. In a particularly dramatic turn of events, the Nifty gained over 300 points in just 30 minutes on expiry. These two massive days it effectively erased the bearish bias, providing valuable insights for potential trading decisions.

On a weekly chart, the Nifty is trading within the 22,023-22,514. zone on a closing basis (line chart). A breakout on either side of the zone, on a weekly closing basis, will give an impulse move in the direction of the breakout. For the last 11 weeks, the index is closing within this range. Because of this prolonged sideways, the weekly Bollinger bands began to contract. Currently, it is trading above the 20 and 10 weekly averages. On a daily chart, the index closed at the mean level of the rising channel. A close above 22,521 with high volume will continue the positive bias. Typically, the swing can continue for 8-10 days. The current swing is already completed six days.

The RSI is at upper band of the neutral zone. Another one or two positive days will shift its range into the bullish zone. The weekly RSI is back in the bullish zone after last week’s decline. The daily MACD has given a fresh, bullish signal. The only concern is declining volume. We can assume that, before the pattern breakout, the volume trend normally, declines, and on a breakout, expect a spurt in volumes.

During the last week, the Nifty traded with increased volatility and erratic behaviour. The VIX is at 20, which is a multi-month high, which is the major reason for this. Higher volatility will hurt the positions. All the sectoral indices were losing momentum, though they registered decent gains last week. Next weekly closing is crucial, and we may get the directional bias before the election results. Be with light position size and avoid derivatives for next two to three weeks.

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