A weak VIX indicates a red flag on a bullish bias
For the fourth consecutive week, the domestic market was buoyant and continued to recover. It is the first time in this calendar that the indices go back four weeks in a row. The benchmark index hit a new high and also recorded a new closing high over the past week.
The NSE Nifty traded in a range of 268.65 points and ultimately came in at 15,799.35 with 129.1 points or a gain of 0.8%. BSE Sensex up 0.7 percent. The outperformance of the broader market continues. The Nifty midcap-100 and smallcap-100 indices rose 2.9% each.
As expected, last week Nifty IT and pharma hit a new lifetime high with gains of 4.5% and 2.6%. The media index also rose 3.5 percent. In contrast, Bank Nifty fell 0.69% and FinNifty fell 0.5%.
In the last nine trading sessions, the FII have bought Rs47 88.03 crore and the DII have sold Rs 1,805.27 crore of shares. Overall, the market width is positive during the week.
Technically speaking, the Nifty formed a perfect Doji candle on Friday. Several of these declines have failed to gain confirmation in recent history. This time, it is better not to predict the direction, but to carefully follow the trend. An indecisive candle with declining momentum at the new life high is not a strongly bullish sign. The trend in volumes has also slowed down over the past four weeks.
Indeed, volumes have been declining since the start of this year. But the Nifty has gained 11.45% since the April 22 low.
It looks like the market has been a bit technically overloaded. It also retraced exactly 127.6 percent from the previous fall. He also met the target of 50 percent of the cut distribution. Currently, Nifty is trading 2.47% above 20DMA and 15.76% above 50DMA.
Distance from these short-term averages is also important in assessing market stretch. Previously, when the index moved more than 20% towards the 50DMA, it fell near the moving average. The current structure of the bars over daily and weekly periods shows the state of overload and exhaustion.
However, there is no significant bearish signal unless there is an overbought condition, there are several concerns about the direction of the market. The lowest level of the VIX is the number one concern regarding the direction of the market. As mentioned earlier, the index and the VIX have an inverse relationship. Low VIX levels indicate a red flag on the bullish bias.
Over the past week, the Nifty has seen steep drops of over 100-200 points in just 10-15 minutes, indicating a weak VIX. Last week the VIX was down 11.53 percent and below 15. The weak VIX will cause a steep drop. At the same time, the dynamics are slowing down markedly.
The histogram is down for the past nine trading sessions when the Nifty moves higher. There is a visible negative divergence on the RSI on a weekly chart. There is also a discrepancy with Bank Nifty. Nifty closed at a new lifetime high, but Bank Nifty is still seven percent below its lifetime peak.
Technically, the Nifty needs to close below 15,660 points to get bearish confirmation. Even if it closes below 15,750, this also gives an early signal of a reversal.
Keep a cautiously bullish approach to the market, as long as these levels are not exceeded. Maintain a trailing stop loss and watch out for sudden moves. It is best to reduce the size of the position as a risk management practice.
(The author is a financial journalist and technical analyst. He can be contacted at [email protected])