Nifty took support at a 10-wk average and 20DMA last week. It formed an inside bar on Friday. After the 694-point trading range, the inside bar is a sign of consolidation before the even risk

Just before the event risk, the equities traded nervous last week. NSE Nifty lost by 426.40 points or 1.86 per cent. BSE Sensex declined by 1.92 per cent. The Midcap-100 and Smallcap-100 indices are also down by 1.37 per cent and 1.10 per cent, respectively. The PSU Bank and Bank Nifty gained by 0.37 per cent and 0.03 per cent, respectively. All other sectoral indices closed with negative bias. Nifty IT is the top loser with 4.25 per cent, followed by the Energy index with 3.31 per cent. The Advance-Decline ratio was negative throughout the week. The volatility index, India VIX, is up by 13.32 per cent to 24.60. The FIIs sold Rs42,214.28 crore, and the DIIs bought Rs55.733.04 crore worth of equities last month.

The benchmark index, Nifty, ended a six-month positive closing streak. It closed below the open on a month chart and formed a long-legged Doji candle. For the last five months, the index was traded in 1,973 points or 9.34 per cent range. It formed two indecisive Doji candles and three small body candles. It repeated the Doji candle after January 2024, with high volumes. Even on the weekly chart, the index recorded a massive volume with the addition of two distribution days. Currently, the Nifty is holding three distribution days. The Nifty has formed a dark cloud cover candle, which is bearish. It was up by 901.90 points or 4.09 per cent in the previous two weeks. With a net decline of 426 points, the index retraced 50 per cent of the rally.

The Nifty took support at a 10-week average and the 20DMA last week. It formed an inside bar on Friday. After the 694-point trading range, the inside bar is a sign of consolidation before the even risk. The index is just 0.60 per cent above the 50DMA. A massive volume on an inside bar day is also a sign of distribution or reducing the position sizing. The MACD is about to give a bearish signal. The weekly and daily RSI entered into the neutral zone. Several other indicators are showing that the momentum loss.

The exit polls are out. Two major surveys projected 400 seats for NDA. This will boost the sentiments in the market on Monday. Expect a huge uptick and will trade with a massive swing. The Nifty may open with a huge gap up. As per the exit polls, we must not be short on Monday.

During the last five weeks, the volatility index, India VIX, rose by 125.19 per cent from 10.9 to 24.60. In fact, it tested 26.19 on Monday. India’s VIX is at 24.60, which means the index can move by 7.1 per cent on either side in the near term (the higher probability is on the upside). This means the trading range will be 20,928-24,132. Normally, soon after an event, volatility collapses to the mean level, which in turn causes option premiums to collapse. During the 2019 election results, the VIX collapsed from 30.18 to 14.49. The market is experiencing heightened volatility, which may make technical and fundamental analysis less reliable. Consider taking a break from trading for the next two days to allow the market to stabilise. This can help you avoid making impulsive decisions and give you time to reassess your strategy.

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