Markets likely to remain volatile

For the third consecutive week, Nifty oscillated in a narrow range amid volatility. The benchmark index closed marginally lower with 0.4 per cent loss at 11,712 while broader markets underperformed the benchmarks.

The Midcap and Smallcap indices closed lower by 1.5 per cent each. The market was experiencing high voltage volatility with almost 100 point range every day.

The index tested the prior lifetime highs several times in the past three weeks. As General Elections entered into final three phases, investors are cautious and waiting for the mandate.

Technically, the market has not moved anywhere on a closing basis, but the volatility increased on an intra-day basis. Nifty is forming indecisive Doji bars consecutively for the last three days.

This kind of indecisiveness may continue till the new Government is formed. The Nifty is moving between 11,550- 11,800 since March 20. In this consolidation in sideways, price is now showing confirmed bearishness in anytime frame.

But the indicators are clearly with negative divergences. In this kind of situation, the positional traders are not getting any clear opportunities. Even intra-day traders are caught in volatility.

With this sideways activity, the Bollinger Bands appeared contracted, and the price is near the 20MA. This suggests that the exponential price movement or a trend reversal may be witnessed in the near future.

In any case if the Nifty closes below 11,670, it may once again test the 11,550 support. The range of 11,550-11,800 may continue for some more days.

As there are many rejections at the resistance, if the support 11,550 breaks on weekly closing basis, Nifty may fall sharply to the 11,200 levels.

The leading indicator RSI has been moving downward since March 20. Historically, RSI took support at a 40-45 zone. Now the RSI value is 57.52 and in a neutral zone.

Let us wait and watch for next week's move to forecast the future course. If the price closes below 11,669, the RSI may breach its recent low. This is also a negative signal for the Nifty. The MACD is yet to slip below the signal line.

Another interesting observation is the volume is more when markets are down. There are eight down days in the last 11 trading sessions and these are all distribution days.

The Williams Accumulation and Distribution indicator is also suggesting that distribution is high at the resistance points and at the same time accumulation is taking place when it approaches the support.

As there is no confidence in the market direction, the volatility persists and traders may not get clear signals either side. As long as Nifty does not move above 11,761 and sustains for at least two days, it's better to avoid long positions.

As the risk-reward ratio is not so convincing, it is better to avoid any positional trading in Nifty.

(The author is a financial journalist and technical analyst. He can be reached at tbchary@gmail.com)