Upward movement above 19,800 pts

The domestic equities were very volatile during the last week, and the benchmark indices traded in the extended range. NSE Nifty traded in 499.15 points range during the week and finally settled with 134.30 points or 0.68 per cent decline. The BSE Sensex also declined by 0.66 per cent. The Nifty Mid-cap and Small-cap indices advanced by 0.73 per cent and 0.84 per cent, respectively. Only Nifty IT and the Pharma indices were the gainers, with 3.21 per cent and 1.86 per cent, respectively. Nifty Realty declined by 4.23 per cent, and PSU Bank, down by 4.05 per cent, are the top losers.

The market breadth is mostly positive during the week. Last week we discussed that the overstretched market would enter into consolidation as long as it trades below the 27th July high of 19,867 points. The pullback is limited to just one day (Monday). It failed to break out the Flag pattern on the upside on Tuesday, though it opened above the previous day’s high. The next two days of sharp fall resulted in a downside breakout. The positive aspect is that the decline is once again limited to three days and back into the downward Flag pattern. As mentioned above, a close above 19,626-660 levels can be considered a failed breakdown.

Interestingly, the broader market indices continued to outperform. The Nifty gained by 18.80 per cent from the March lows, and the Mid-cap and Small-cap indices gained by 29.74 per cent and 35.98 per cent, respectively.

The VIX is still at historically lower levels, still a threat to the trend. A small spike in VIX will lead to an impulsive move in the index, which was evident last week. With Friday’s bounce, the VIX is back to below 11 levels. As long as the VIX sustains at lower levels, the market is vulnerable to profit taking on every rise. The RBI policy scheduled next week on a weekly expiry may witness a spike in volatility. For the next week, the 19,140-660 zone will be crucial support and resistance.