By Anand James
While it cannot be said yet that the broad uptrend has come to a halt, the formation of a broadening wedge pattern does put an end to the blistering series of up moves that has continued unchecked for over a fortnight now. We have stepped into a consolidation period with ample opportunities for traders on either side, especially given the rise in VIX. While last week, backed by net positive outflows by FIIs’ saw all dips being ferociously bought, this week is likely to see a reversal of the same, with most rises likely to see distribution. This week we expect upside attempts to slow down on approach to 17450-570 region and downside attempts to slow down on approach to the 17220 vicinity and 17570-17160 range would have to be broken for Nifty to wriggle out of consolidation bias.
For the medium term, while 17750 is truly a congestion region worthy of forcing a proper turn lower on the first test, unlike the one we have seen so far on test of 17500, weekly charts look strong, encouraging us to move the near term objective higher to 18200. In the event of 17570 remaining unconquered this week, expect mean reversion moves to 17050. Meanwhile, Bank Nifty has fallen off the regression line, and has moved into a sideways trend, and will require a fall below 37000, to invite directional downsides. Evolution of VIX this week would be crucial towards this end.
Volatility has risen, with VIX having risen from sub 16 levels to 19 levels. It is still benign, given where it has been all through the last 6 months, but sustained VIX above 20 could be a cautionary sign, but until then, the dips would be worthy of accumulation. However, the trading range at 1 sd is 2000 points, and the last time we had a range as wide as this was in March shortly before Nifty peaked at 17791 followed by a multi month decline. Incidentally, VIX was at around 19, similar to where we are now, and if history were to repeat, the rest of August could see bears dominating.
(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)