Time to stay on the sidelines

The equity markets traded in the tight range for the second successive day. NSE Nifty traded in just 92 points range and closed at 22,402.40, with a gain of 34.40 points. The Nifty Metal index is the top gainer with 2.69 per cent. The PSE, and CPSE also up by 1.60 per cent, and 1.14 per cent, respectively. The Nifty IT, Media, PSU Bank and Auto indices ended in negative territory by 0.8 to 0.81 per cent. All other indices were gained by 0.05 per cent to 0.90 per cent. The India VIX up by just 0.78 per cent to 10.27. The market breadth is positive as 1,629 advanced and 973 declined. About 150 stocks touched a new 52-week high, and 158 stocks traded in the upper circuit. Sail, IDEA, HAL and HDFC Bank were the top trading counters in terms of value.

The Index has formed a Shooting Star candle after failing to sustain above the previous day’s high. For the third straight day, the Nifty closed below the opening level, though it closed in positive territory. The index is struggling around the 61.8 per cent retracement level of the prior fall. The daily range was shrunk to less than 100 points for the last two days. This shows that the buying interest is missing. The volumes were also recorded below average in the last three days. On an hourly chart, the MACD has given a fresh, bearish signal, as we expected on Tuesday. The daily RSI (54.08) is almost flat. The momentum is clearly waning. Currently, the Nifty is above all key moving averages. It is above the 10-week average and 50DMA decisively. With this last week’s bearish close impact, it was erased.

After the first hour of trading, the index formed lower high bars, repeating the previous day’s price action, and the gain was limited to 0.15 per cent. The attempt to move above the 22,450 resistance failed and struggled to hold the 22,400 support for the day. On a monthly derivatives expiry day, it will be interesting to see if the index will find a directional bias. The Implied Volatility (IV) was down to 11.2, resulting in cheaper option premiums, which is not suitable for selling. At the same time, the India VIX still at 10.27, is not good for the trending market. The rollovers were recorded at 49.44 per cent, less than three-month average, which means the current trend is not convincing to roll over the positions. In these conditions, stay on the sidelines, and wait for a decisive directional bias.

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