Markets likely to witness high volatility

The Indian markets traded with high volatility during the previous week ahead of five states election verdict, as it closed lower by almost 1.5 per cent. The Sensex down by 521 points closed at 35,673 and Nifty closed at 10,693, down by 183 points. 

As we mentioned, Nifty faced resistance at 50 per cent retracement level last week and not sustained above 200 DMA. The previous week's data points, global markets, OPEC meeting, rupee depreciation are major reasons behind poor sentiment in the market. 

Traders are very cautious about political risks as state election results are just a week away.  The broader indices like Nifty Midcap and Smallcap indices are also underperformers as they lost 2.6 per cent and 2.7 per cent respectively. 

Technically, Nifty formed a bearish candle, Dark cloud cover at a strong resistance level, which is not a good sign for markets. The though death cross in Nifty still on, it is trading above 50 DMA but below 200 and 20 DMAs.

And, it is yet to form a lower low and lower high to confirm the bearish signal. On a daily chart, Nifty formed a bullish Harami candle pattern. And the leading indicator RSI showing some positive signal as it is bouncing from swing supports. 

With these divergent signals, the market may witness very high volatility with high swings. The crucial support is at 10567 and 10588 which is 38 per cent retracement level  from recent rally. If the Nifty closes below these levels, it may test 10360, a strong support.

Unless Nifty moves above 10,750, bullishness may not possible. Be cautious as high voltage trading may happen on Tuesday, any negative news for ruling BJP may dampen the sentiment for the medium term. (Hans Research Team)