General Election Results Set To Infuse Significant Volatility In The Session; Avoid Speculative Bets
The Indian equity markets witnessed a very volatile session ahead of general election results and moved in an 85-point range to finally end with modest gains. After seeing a flat start to the trade, the NIFTY oscillated back and forth in a defined scope and continued resisting to the critical resistance levels. In a highly cautious approach to the day, the NIFTY finally settled with net gains of 28.80 points (+0.25%).
Thursday will see one of the significant domestic events – general election results, and this is set to infuse extreme volatility into the trade. Apart from this, there is weekly index options expiry, and this will make moves volatile in a different way.
Given this event, it would make little sense if we once again mechanically analyze the markets. There are chances that we will see a gap-up or a gap-down opening once again. Because of the amount of volatility that such events usually infuse, markets are very much likely to violate its otherwise technically significant levels.
The NIFTY is yet to move past its critical resistance zone of 11760-11850 levels. Even though the NIFTY formed an incremental high at 11883, it has failed to achieve a clear breakout from the double top resistance point of 11760.
A Spinning Top occurred on Candles. Such formation typically occurs when the candle has a small real body. This spinning top has emerged following a dark cloud that appeared on the previous day. All this point towards significant discomfort and indecisiveness of the market participants and may potentially lead to the formation of a temporary top.
Going by the options data, the strike of 12000 saw highest Call Open Interest built up. Interpretation of high Call OI at 12000 strike means that even if all outcomes are as per the expectations, the NIFTY may not go beyond 12,000-mark under present circumstances. On the other hand, there is high Put OI built up at 11500. Going by this, this level may provide some mild support in the event of any weakness.
Under the present technical setup and keeping in mind the volatility that is likely due to general election results, we recommend staying away from taking any speculative un-hedged bets in the markets. Using intraday dips to make purchases should be avoided unless the markets form a directional bias and move past its crucial resistance points.
Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst Member: (CMT Association, USA / CSTA, Canada / STA, UK) | (Research Analyst, SEBI Reg. No. INH000003341)