Wild Swings In Sight Amid Spiked Volatility

Last week, equities registered wild movements as the tariff war escalated. NSE Nifty traded in an 1,180.25-point range, or 5.43 per cent, and finally closed with just 75.90 points, or 0.33 per cent, decline. BSE Sensex is down by 0.28 per cent. The Mid-cap and Small-cap indices declined by 0.29 per cent and 0.13 per cent, respectively. The Consumer Durable Index is up by 3.77 per cent, and FMCG is up by 3.55 per cent. The Media index advanced by 1.03 per cent. The Nifty Realty index is down by 4 per cent, and the Metal is down by 2.30 per cent. The Bank Nifty closed lower by 0.97 per cent. The India VIX is up by 46.18 per cent to 20.10. The FIIs sold Rs34,641.79 crore, and the DIIs bought Rs27,588.18 crore worth of equities.

The global and domestic equity markets experienced a most volatile week after the 2008 Global financial crisis. The Nifty opened with a 1,142 points gap down on Monday and made a new lower low at 21,744 points. On Tuesday and Friday, the Nifty opened with 285 points and 296 points positive gaps, respectively. These wild moves have resulted in a massive spike in VIX. It tested the 23.18 level, which is the highest level after June 2024. Finally, the Index closed negatively for the second consecutive week. It formed an open low candle for the week, which can be considered as a fear bottom. It also formed a strong bull candle. Monday’s negative close with a massive volume also suggests that these low breaches expect consolidation.

The Nifty faced resistance at a 10-week average. As we expected, the Index is still below the 50DMA and the 20DMA. It is just able to close above the 8EMA. The Index just closed above the 50 per cent retracement level of the downswing. The Index is able to close above the 100-week average, which acted as support in the past. Currently, it is at 22,153 points, which will be crucial support for the near term. In any case, the Index closes below 22,153 points, will be negative and witness a deeper correction below the previous low. But, a close above the 22,917-23,141 zone will be positive and may test the near recent high of 23,869 points.

As the VIX is at 20.10, expect the wild moves. We may see about 5 to 6 per cent swings in the next 30 days. The probability of making the base below 23,869 is increasing. If the Index consolidates between 22,150-23,860 for the next few weeks, expect a Stage-1 base breakout in June.

The RSI is in the neutral zone in all time frames. The MACD is bearish on weekly and daily charts. The ADX’s decline is negative for the trend. The -DMI above the +DMI is also showing weaker trend strength. If the rally continues, the weekly MACD histogram may turn positive.

For the rally to continue, the Index must close above the 22,917-23,008 zone of resistance first. The 61.8 per cent retracement level is also similar to 23,058 points. Expecting these resistance zones is very crucial for directional bias. But a close below the prior day’s low is negative and can resume the downtrend.

As the news flow changes sentiment every other day, it is better to avoid taking highly leveraged positions. The tariff war takes new turns every day. The latest exemption of mobiles, computers, and semiconductors will have a positive impact. The uncertainty will cause the wild swings in the market.

(The author is partner, Wealocity Analytics, Sebi-registered research analyst, chief mentor, Indus School of Technical Analysis, financial journalist, technical analyst and trainer)