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Quantitative data setup: Falling volatility suggests bullish view remains intact in India and the US

June 27
20:28 2020

Shivangi Sarda

Greed and Fear Indicator : VIX indicates bullishness ahead (VIX CMP – 28.74)

India VIX fell by 4.07 percent from 29.96 to 28.74 levels on weekly basis. Falling volatility suggests overall bullish view and emergence of multiple supports at small declines. It remained down for 2 out of 5 days in the week but overall lower volatility provides comfort to bulls to form the higher market base. It remained quite choppy for the entire week as sentiments remained flip flopped.

CBOE VIX

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The Wall Street’s fear gauge slipped to 32.33 after opening at 35 levels, indicating emerging strength in the US market. It was down by 8.26 percent and continued its decline for the second straight week. It has been hovering between 30 to 37 which is giving comfort to the bulls and sets the base for a new rally in the US key indices.

Fund Flow : FIIs break their buying streak

In the cash segment, FIIs turned net sellers in the latter part of the week but overall bought worth Rs 556 crore in the week and Rs 9,430 this month. DIIs on the other hand were net sellers to the tune of Rs 1,310 crore this week and Rs 653 crore in this month so far. However, VIX needs to cool down for FIIs money flows to be back in the system.

Safe Haven : A rise in the precious metal is an alert for the bulls (Gold, MCX CMP – Rs 48,420 per 10 gram)

Gold was at a halt during the most part of the week as Nifty gained strength but rose exceptionally and closed near to Rs 48,400 levels. Gold was moving in an ascending triangle pattern on daily frame for the last 2 months with a weekly gain of around 1.07 percent and is likely to move towards its resistance of Rs 48,900. Bulls should take this exceptional rise in the price of precious metal with a pinch of salt. The second wave of the deadly coronavirus and increasing number of cases globally is keeping the trend intact and will lift its allure.

Among other precious metals, silver was marginally down by 0.6 percent on week-on-week basis.

Option Data : Nifty range 9,800 to 10,800 (Nifty CMP – 10,383)

Nifty closed the week with gains of around 100 points or 0.91 percent from the previous weekly close of 10,288 to 10,383 levels. During the week it made high of 10,194 with recent high of 10,553 mark. During the week it remained consolidative with buy on decline strategy while hurdles were also seen at higher zones as market has already rallied by more than 1,000 points in just 10 trading sessions. Since it is the beginning of the new series, option data is scattered at various strikes.

On weekly front, maximum Put open interest is at 9,000 followed by 10,000 strike, while maximum Call open interest is at 11,500 followed by 10,500 strike. We have seen marginal Call writing in 11,200 and 10,800 strike while Put writing seen at 10,000 then 9,500 strike. Option data suggests a wider trading range in between 9,800 to 10,800 zones.

India Rupee : Geopolitical issues weighs investor sentiments weekly basis (USD/INR CMP – 75.62)

The rupee strengthened against the USD on week-on-week basis by 0.84 percent and closed near to 75.62 levels giving further relief to the bulls.

Crude Oil : Oil moves in a range (Crude Oil MCX CMP – Rs 2,947 per barrel)

The crude oil was trading in a range, consolidating near its support levels and should strengthen further. The energy market has been showing strength but was marginally down by 2.5 percent on weekly basis. However it continued to move in a rising channel on daily frame. Improvement is seen in the demand due to the lifting of lockdown and relaxation of restriction in movements but concerns of a second wave of the coronavirus infection remains.

Dow Jones Industrial Average: Waiting for some positive cues (DJIA CMP – 25,015)

Dow continued to trade in a range on the daily frame, hovering at its key support levels. It closed around 25,015 with weekly loss of around 3.3 percent on political, geopolitical and COVID issues.

The second wave of the deadly pandemic and new coronavirus cases arriving in large compounded by the geopolitical concerns worldwide are making investor sentiments fragile. We need to now wait and watch the key levels.

Moving forward, Nifty has to continue to hold above 10,333 levels to witness an upmove towards recent swing high of 10,555 levels then 10,800 levels while support shifts at 10,250 then 10,180 levels. Bank Nifty immediate support exists at 21,300 then 21,000 for an upside move towards 22,000 then 22,500 levels. Stock specific positive setup is seen in Technology, Oil & Gas and selective pharma and NBFC counters.

The author is Research Analyst – Derivatives & Technical Research at Motilal Oswal Financial Services.

Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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