Low VIX a dangerous sign for market
India VIX declined by over 21%; The 2008 and 2020 crashes occurred, when the VIX was at its lowest levels of below 10; Nifty forms an open-high candle. Stay on the sidelines or with a very low position size
image for illustrative purpose
Equities traded range-bound and with low volume. As the derivatives expiry is nearing and the India VIX is at its lowest level, traders did not show interest in participating. NSE Nifty gained 31.60 points and closed at 22,368 points. Nifty Realty index is the top gainer with 2.58 per cent.
The Smallcap and Midcap indices were up by 1.23 per cent and 1.06 per cent, respectively. The FMCG, CPSE, Consumer Durable, Media, and IT indices gained over 0.50 per cent. The Nifty Pharma declined by 0.96 per cent is the top loser. Oil and Gas is down by 0.73 per cent.
The market breadth was positive as 1,603 advanced and 1,001 declined. About 377 stocks hit a new 52-week high, and 182 stocks traded in the upper circuit. IDEA, Reliance, Cochin Shipyard, and HDFC Bank were the top trading counters on Tuesday in terms of value.
On Tuesday, the India VIX declined by over 21 per cent, a significant drop that warrants caution in market direction. The VIX and the benchmark index have an inverse relationship. Despite its loss of relevance recently, history reminds us that a low VIX is negative for the bull market. The 2008 and 2020 crashes occurred, when the VIX was at its lowest levels of below 10. In this context, it is crucial not to be complacent and to stay vigilant.
The Nifty has formed an open-high candle on Tuesday with a lower volume than the previous day.
For the last three days, the cash volumes have been declining, when the index is moving higher. A low volume rise is not trustworthy. On an hourly chart, the index has registered a descending triangle breakdown, which is bearish. It is close below the prior day’s high. The RSI closed flat as momentum was waning, as it was down by 98 points from the day’s high. During the first and last hours, the index witnessed maximum selling pressure. The index traded in just the 98-point range. Interestingly, the Bank Nifty has formed two back-to-back open-high candles, which is weird. The market conditions are not conducive to build the fresh positions on either side. Low VIX is a dangerous symptom for the market. Stay on the sidelines or with a very low position size.
(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)
