Cut down highly leveraged positions

Equities witnessed huge volatility last week. All sectoral indices closed in negative, reflecting selling pressure in the broader market. Nifty traded in a 649.80-point range and finally declined by 372.40 points or 1.65 per cent. The BSE Sensex was also down by 1.56 per cent. The Midcap-100 and Smallcap indices were down by 2.74 per cent and 1.37 per cent, respectively. The Nifty IT index is the top loser with 4.71 per cent fall. The market breadth is primarily negative. The India VIX is up by 16.69 per cent to 13.45. The FIIs sold Rs22,229.49 crore, and the DIIs bought Rs21,268.96 crore this month.

The Benchmark index, a key indicator of market performance, finally closed below the 10-week average after the first week of November 2023, a significant event in the market’s recent history. This event is crucial as it indicates a potential shift in market dynamics. It also closed below the 50DMA. Currently, the index is holding four distribution days.Importantly, last week’s shooting star or counterattack bear candle gets the confirmation for its bearish implications, as the index closed below the previous week’s low.

After the March 2020 low, all the minor swings are 2.5 per cent to 4.85 per cent. During the current rising channel, the Nifty had four minor down swings with 4.46 per cent, 3.62 per cent, and 4.38 per cent. These minor swings are sharper, as all declines were limited to 4-8 days. But the rising swings consumed more time and had less volume. The erratic and high volume declines in the rising channels characterise Stage 3 and distribution. In a nutshell, watch the opening hour on Monday. If the index trades below the first hour’s low, avoid taking long positions.

As the monthly derivative expiry is scheduled, cut down the highly leveraged position. Huge swings can hurt the Option positions very fast. As the VIX rises again, expect more volatile days. The event risks, geopolitical tensions globally, and General Elections domestically will have a high impact on the market. Try to be on sidelines till the dust is settled.