RBI policy decision may trigger breakout

The equities sharply bounced and closed at the previous day’s high. NSE Nifty gained by 81.75 points or 0.42 per cent and closed at 19,693 points. The Nifty futures are trading with 61 point discount before the event risk. The Nifty Metal and Media indices were the top gainers with 2.03 per cent and 2.10 per cent. The CPSE and Auto indices gained 1.11 per cent and 0.93 per cent, respectively. Nifty Realty is the top loser with 1.24 per cent. Bank Nifty and FinNifty declined by 0.19 per cent and 0.21 per cent. All other indices closed with modest gains. The market breadth is positive as the advance-decline ratio is at 1.29. About 140 stocks hit a new 52-week high, and 85 stocks traded in the upper circuit. HDFC Bank, Gland Pharma, and ICICI Bank were the top trading counters on Wednesday in terms of value.

The Nifty erased initial losses with a strong late afternoon bounce. The bounce with a lower volume than the first hour’s decline volume is not a strength sign. The Open Interest is up by just 1.28 per cent, which is also not a great sign. The Nifty tested the previous day high and closed just below it, which is technically a positive sign. The index recovered by 178 points from the day’s low; closing at the day’s high is another positive sign. The market is sensing positive bias in today’s monetary policy.

The index closed at the crucial resistance area of the sloping trend line and the 20-DMA. As mentioned earlier, the Anchored VWAP is also at a similar level. The daily range has increased to 178 points, and intraday volatility is also higher. During the day, the index breached the channel support line, and with the recovery, it went back into the channel. It is important to close above 19,660 points to resume the uptrend. On Thursday, first-hour trading may not trend, but after the policy announcement, we may see a sharp spike in either direction. On Wednesday, the VIX declined by 1.63 per cent. Even the Implied Volatility (IV) also declined to 9.14. Normally, the before the event, risk IV will be higher. On the weekly expiry and the event risk day, an hourly close above 19,660 points is positive, and it can test 19,780 points. But a negative close on the hourly bar is negative and will test the below 19,467 levels. Stay vigilant on the event day.

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