Testing times for short-term traders

The stock markets traded amid elevated volatility while maintaining positive bias and closed the week with 1 per cent gains. The Sensex gained 334 points while the Nifty was able to close 105 points higher. 

The market is witnessing sharp volatile moves between 10975 - 10535 levels. But if you see the price structure of the Nifty, it is clear case of classical distribution happening on every top. And there is no clear trend as the index is moving within the range with a higher degree of volatility.

The range and volatility indicator Bollinger Bands flattened. This shows that market is rangebound. Nifty shed 1,740 points in 27 trading sessions from August 29 to October 26.

The current recovery phase has so far lasted for about 41 trading sessions. But still, it is unable to retrace the important 61.8 per cent level even after institutional inflows. The recovery is not as faster as the fall, which shows that there is no conviction to the upside. 

If we observe the previous moves and all the major swings in 34-40 trading sessions, the current upswing also continued for 40 sessions. Unless it clears the 10,985 or falls below 10,535 level, the rangebound volatile activity will continue. 

The history says that many major tops are done in the month of January. So, expect a major top in next month. As long as the support of 10535 holds, do not short the market and at the same time do not be aggressive on the long side.

As soon as the support breaks, the market may witness another leg of sharp correction, which can test or go below the previous low. In the other two months period, market may form the lower bottom. Now the testing times are ahead for short-term traders as market going to be very volatile.