Low VIX major concern for investors

The equities opened on a weak note, but closed positively by the end of the week. The benchmark index traded in the 342.15 points range and closed with just 15.2 points net gain. The BSE Sensex also gained by 0.25 per cent. The Mid-cap index was down by 0.62 per cent, and the Small-cap index was up by 0.69 per cent. On a sectoral front, the Nifty Realty index is up by 2.06 per cent, followed by the IT index with 1.75 per cent. On the flip side, the Nifty Pharma index is down by 1.91 per cent, and the Metal index declined by 1.39 per cent. The FIIs sold Rs8,412.65 crore, and the DIIs bought Rs4,435.17 crore worth of equities in the last four trading sessions. The India VIX was down by 10.14 per cent last week and back to below the 11 level.

The Nifty witnessed a volatile move last week. It formed a long lower shadow candle. It sustained above the 10-week average. After a decline of 4.4 per cent, the formed Hammer candle. The pullback rally tested the 38.2 per cent retracement level. The index took support at the 20-week moving average and bounced above the 10-week average. The last two days’ gap openings and positive closing with lower volume show the effort to come out of short-term oversold conditions. Generally, after a sharp decline, the pullback rallies will end at 38.2 per cent to 50 per cent retracement levels. The index is 0.67 per cent below the 20DMA, also equal to the 50 per cent retracement level. The 19,767-78 is key resistance now. Only above this will the bulls take control.

In the previous weeks, the spurt and collapse in VIX have given caution signals. The collapse in VIX is more in the last five sessions and back to the historical lowest range. This precariously low range of VIX is not good for the market. The equities are vulnerable to sharp moves. In any case, if the Nifty moves beyond the 20DMA, then watch the VIX very closely. If it declines below 10, it means we are inviting an unexpected storm.

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