Unexpected Volatility Likely

Equities bounced sharply in the afternoon session, with four heavyweight banks leading the rally. The Nifty gained 217.30 points, or 0.91 per cent, and closed at 24,213.30. The Metal index was the top gainer, with 2.84 per cent. The FinNifty and Bank Nifty are up by over 1.94 per cent each. The PSU Bank and Commodity indices are up by over 1.5 per cent. The Auto, PSE, and Services indices gained by over one per cent. On the flip side, the FMCG declined by 0.34 per cent, and the media went down by 0.23 per cent. The India VIX declined by 3.39 per cent to 16.12. The market breadth is positive as 1,761 advances and 1,042 declines. About 77 stocks hit a new 52-week high, and 153 stocks traded in the upper circuit. Waree Engineer, HDFC Bank, SBIN, and Reliance were the top trading counters, in terms of value.

The Nifty sharply recovered by 386 points or 1.62 per cent from the day’s low. HDFC Bank, ICICI Bank, Axis Bank, and SBI have contributed over 112 points to the index. The Nifty made a higher low, which is a significant technical development. In a highly volatile session, all sectoral indices were negative at one point in time. By the end of the day, all leading sectors were positive. The Metals rally is a surprise for traders. The last two days’ lows of the 23,816-842 zone will act as crucial support. As long as this support zone is protected, it is better to avoid short positions. The index has retraced 78 per cent of the previous day’s fall. It is still below the 8EMA, but has provided an early positive signal. On an hourly chart, the index has registered a double-bottom pattern breakout. It is important to move above the Monday’s high of 24,317 and 8EMA of 24,276 for a confirmed upside move. Above these levels, the 20DMA of 24,991 is the immediate target. On the upside, it is difficult to forecast more than this. As Bank Nifty is forming a base, and PSU banks and private sector banks are leading the recovery, it is better to stay positive for the short term. Stock-specific activity will continue. The US election results, and the outcome of the Federal Reserve meeting will also influence the market in the next two days. Stay cautious, as we are expecting an unexpected level of volatility.

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