Beware of rising volatility in market

After trading in positive territory for most part of the day, the benchmark indices Sensex and Nifty turned negative in the last hour of trading. While the Sensex closed 18 points lower at 38,963, the Nifty shed 12.50 points to end at  11,712.

On the sectoral front, IT, Metal, Oil & Gas, Healthcare and FMCG indices ended in the red, while sectors like Realty, Auto, Bank and Telecom closed in the green.

According to analysts, markets showed extremely divergent behavior during the week. While the Small-cap Index was down by 1.5 per cent, the Nifty 50 was almost flat with a downward bias.

Even Nifty 500 Index, which covers 75 per cent of the market cap, was moving sideways.

The Auto sector saw selling pressure after reporting dismal April sales numbers for passenger vehicles, two wheelers and tractors.

Technical View
“Indian equity market consolidated in a shortened week as indecisiveness mounts up as we go near the LS results. It was another week, very short one that saw market oscillating between previous week’s ranges. It is the third week that we have seen Nifty closing in the range of 11700–11750.  It was Nifty bank that has seen some strength in last two trading sessions to close with marginal gains and pare last week’s loss,” said Mustafa Nadeem, CEO, Epic Research.

He further said “the most important point at present to note for investors is the rise in Nifty VIX, the fear index that has been above 20 levels for last few days and is now up above the levels of 23. This indicates the volatility is strolling along side and may turn into an ambush for traders in coming days. This also shows the level of hedge that is in the market with elections results ahead.”

Technically, Indian market is seeing a very strong consolidation in the broader range of 10600-10800. While, on the narrower side, it is 10650–10750 that is going to decide an eventual side of breakout. It has been writers playground for last three weeks and with volatility increasing; it is a buffet for them to eat the premiums in a squeezed range.

Market View
“At present, the ideal strategy would be to keep focusing on individual pockets that were buzzing during the week. We are heading towards the mega event (Election Verdict slated on May 23) and hence, a possibility of rise in volatility cannot be ruled out. One needs to keep this thing in mind and should position accordingly from henceforth till the actual event day,” said Sameet Chavan Chief Analyst-Technical and Derivatives, Angel Broking.