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Falling India VIX indicates sideways consolidation till any other trigger doesn#39;t affect market

July 08
02:29 2019

Chandan Taparia

Nifty failed to test psychological 12,000 zones and drifted sharply towards 11,800 levels. It remained muted before the Union Budget. But after that, it witnessed sustain selling pressure and wiped out all the gains of past four trading sessions.

It formed a Bearish Engulfing Candle on daily scale and a Shooting Star on weekly scale which implies that selling pressure is seen at higher levels. Index has failed to surpass its trading range of last seven weeks and got stuck in the wider trading range of 11,600 to 12,000 zones.

It has negated its formation of higher lows on daily scale but holding near to its key support of 11,761 zones. Now it has to cross and hold above 11,850-11,888 zones to get the stability to witness an up move towards 11,980-12,000 zones while on the downside major supports are seen at 11,720 then 11,650 levels.

India VIX fell down by 12.64 percent from 14.95 to 13.06 levels in the last week and drifting lower after a marginal bounce of last two weeks.

Volatility remained lower even after the Budget event and now it started falling down which indicates that participants are not expecting much action or expecting a sideways consolidation till any other trigger does not affect the Indian market.

On the option front, Maximum Put OI is at 11,500 followed by 11,300 strike while maximum Call OI is at 12,000 followed by 12,500 strike. We have seen Put writing at 11,400 then 11,700 strike while meaningful Call writing is seen at 12,000 followed by 12,200 strike. Option data suggests a trading range in between 11,600 to 12,000 zones.

Bank Nifty has been outperforming to the Nifty index and during the Budget day it turned sharply from its crucial support of 31,313 zones. It formed a Spinning Top kind of Candle on daily as well as on weekly scale but managed to hold its support and gains near its life time high territory which implies that buying interest is seen on declines but follow up is missing at higher levels.

Now, it has to continue to hold above 31,313 zones to extend its gains towards 31,780 then 32,000 zones while on the downside supports are seen at 31,150 then 31,000 levels.

Sector specific buying interest and positive set up is mainly seen in most of the Private and PSU Banks, NBFC and FMCG stocks while Metal, IT, Auto and Capital Goods stocks have seen profit booking declines.

Stock-wise we have observed positive bias in Kotak Mahindra Bank, IndusInd Bank, State Bank of India, Bank of Baroda, HDFC, Marico, Colgate Palmolive and Dabur India while weakness in Vedanta, Jindal Steel & Power, Sun TV, BEL, etc.

(The author is Derivatives & Technical Analyst at Motilal Oswal.)

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