Volatility is here to stay

TECHNICALS

The markets displayed unusual volatility, while retaining the bullish bias as the intraday volatility scaled new highs in recent times. Traded volumes spiked sharply higher as day traders ramped up volumes with follow up buying at lower levels.

The market breadth was negative as the combined exchange figures were 1509 : 2411. The capitalisation of the breadth was positive as the commensurate figures were Rs 24491 cr:Rs 8854 cr.

The f&o data for Monday's session showed a 3.7 per cent increase in net long positions and rising implied volatility.

The indices have closed at the upper end of the intraday range, accompanied by very heavy volumes and equally high volatility. That the market breadth was negative, adds to the concern as the choppiness is likely to be at "edge of the seat" levels.

The intraday range 5125 / 5015 specified for Wednesday was overcome on the upside even as the support held during draw downs. The coming session is likely to witness a range of 5350 on advances and 5070 on declines.

The wide range is due to the higher volatility on Wednesday, which forms the base for Thursday's range. Short term traders need to watch the 5175 level on the Nifty as the bulls need to keep the index above this threshold for most part of the session on Thursday, if the upward momentum is to persist.

The outlook for the markets on Thursday is that of abundant caution as volatility is likely to be at record levels and retail traders may not be geared to handle such gyrations. Trades must be initiated on very low exposure to preserve shocks to your capital.

Vijay L. Bhambwani
(CEO- BSPLindia.com)

The author is a Mumbai-based investment consultant and invites feedback at vijay@BSPLindia.com or ( 022 ) 23438482 / 23400345.

Mandatory disclosure: the analyst has no exposure to any scrip/s recommended above.