Charts indicate more volatility

The equities traded in a wide range on Friday and closed at the week's high. The Nifty gained by 0.37 per cent, and the BSE Sensex is up by 0.52 per cent. The Nifty Midcap rose by 0.49, and the Small-cap is down by 0.44 per cent. Nifty IT is the top gainer with 3.06 per cent, followed by the Realty index with 1.56 per cent. The Metal index is up by 1.25 per cent. On the flipside, the Media index is down by 5.69 per cent. The FMCG and Pharma indices were down by 1.75 per cent and 1.50 per cent, respectively. The India VIX is down by 7.69 per cent to 13.05. The market breadth is primarily positive during the week. The FIIs bought Rs11,706.89 crore, and the DIIs also bought Rs4672.49 crore worth of equities this month.

After five days of indecisive and bearish tone, the Nifty surged on Friday. The index recovered 611.5 points from the day's low, with higher volume. This vertical rise was a surprise when the index was struggling with more than 300 points loss. The Nifty closed above the 20-week average, which is a bullish sign. The index is also closed above the 100DMA. Last week, it registered an inverted head and shoulders pattern and retested the neckline on Friday. The index may continue its upward journey by closing at the high of the week. The Nifty cleared the importance of resistance, too.

Importantly, the Nifty closed above the 50 per cent retracement level of the prior fall. As long as the index trades above this crucial level of 24770, expect that the index will move higher. The immediate resistance and target is at a 61.8 per cent retracement level of 25125. Only a close below the 10-week average of 24346 will be negative. It is also the neckline of the inverted Head and Shoulders pattern. After taking the support on a 50-week average, the index rallied by 6.85 per cent from the recent low.

The most important technical development last week was that the daily RSI has shifted its range into a strong bullish zone. The weekly RSI is above the 55 zones and is also bullish. The daily MACD reached above the zero line. As it closed above the 20-week average, the index has completed the mean reversion by testing lower band.

Now, the impulse move on Friday may attract some profit bookings. It may test 24,600-540 zone of support. But in any case, it declines below the 20DMA of 24,213 points, which is negative and can resume the downside move. As the VIX is back to the lower range of 13, it may have an inverse move in the index. The volatility may rise in the next week. It is better to stick to the stronger stocks.

(The author is Chief Mentor, Indus School of Technical Analysis, Financial Journalist, Technical Analyst, Trainer and Family Fund Manager)