Nifty may rise amid high volatility

NSE Nifty gained by 126.20 points or 0.68 per cent just before the monthly expiry. It closed at 18,817.40pts, just 60 points below the life-time high. The short-covering in banks and financials led to the market recovery. The Bank Nifty and Fin Nifty are up by 1.10 per cent and 1.37 per cent, respectively. The Nifty IT and Metal indices also gained by 0.73 per cent each and participated in the rally. The Realty index is the top gainer with 1.24 per cent. The FMCG and Oil and Gas indices closed flat to negative. All other sectoral indices ended in the green. The VIX is closed at the lowest of 10.77. The market breadth is positive as the advance-decline ratio is at 1.53. About 77 stocks hit a new 52-week high, and 73 stocks traded in the upper circuit. HDFC Twins, HDFC Life, and ICICI Bank were the top trading counters on Tuesday in terms of value.

The Nifty closed above the two-day high. It opened with over 57 points gap-up and above the 8EMA. It traded subdued in the morning session, sharply up in the late afternoon session. The NSE shifted the derivatives expiry to Wednesday, triggering the short covering. With the shift in holiday, Options Theta players started covering the positions massively in the indices and index stocks. Major short-covering was seen in banks and financial services sector stocks. Heavy volumes were recorded in the last two hours of trading. The index rallied 92 points from the day’s low and 157 points from yesterday’s low.

Before the expiry, high volume recovery shows that the market is not in a mood to breach the crucial supports. Interestingly, the volatility index, India VIX, closed at the lowest level in recent times. Even the Implied Volatility declined to the lowest level of 7.04. These low volatile periods may lead to unexpected volatility spurts and huge price swings. On the flip side, the RSI is still below the 60 zones, and the Mansfield Relative Strength Index (RSI) is declining further. This means the Nifty is underperforming compared to the broader index Nifty-500. In any case, the Nifty sustains and registers follow-through day; there is a higher probability of hitting a new all-time high in 2 days. The next two days of price action are very critical to the market direction. Stay cautious; high volatile moves ahead.

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