Monday, April 21, 2014

What is wrong with India VIX? Understanding Nifty pattern!

What is wrong with India VIX? Understanding Nifty pattern!

Volatility index (VIX) measures the complacency or anxiety of traders. We have been keeping a tab on this index for quite sometime to understand the medium term indication. On 17th April morning research report we published the following:

As mentioned earlier VIX has still continued to rise and has now reached above 31 levels. This level was previously seen in August 2013 and during the fall of 2011. An important observation is that this time VIX is increasing not with the down move but has reached this level during the entire up move from 6100 to 6815 levels. Also as can be seen on the above VIX chart there is absolute no interruption in trend. Food for thought is NSE started VIX futures trading from 26th Feb and the index was then at 13.50 levels. It is difficult to digest an uninterrupted rise from 13.50 to 31 levels that too along with up move in Nifty exactly after the launch of VIX futures. Is it a mere coincidence or the traders are simply pushing VIX higher without any justification? Normally a rise of such magnitude is a strong warning sign for rally but …….

VIX has jumped today as well by 25% and touched the highs of 38 in morning session. Trade Cautiously! However, it also becomes important to understand the pattern Nifty is forming in order to get high conviction trade setups.

Nifty and Volatility index index: data as on 17th April

Nifty 60 mins chart:

Elliott wave analysis:

From trading perspective it is very important to understand the pattern. Following is probably one of the patterns Nifty is forming mentioned in today’s morning research report:

Nifty managed to protect 6650 level on Thursday and reversed back above 6720 very quickly. Little respect for important resistance levels like 6720 – 6750 indicates a triangle formation. Triangles are very challenging to trade and break important trendline supports and resistance but just to move in sideways action without producing any desired impact. Similar behavior is observed currently. Firstly prices broke below the month long blue support channel on Wednesday and then again moved back above this and immediate resistance levels. So there is high likelihood a triangle pattern is under formation.

In addition to above we have also show Elliott wave counts with alternate possibility along with Time cycles and other indicators like Bollinger Bands®. A special Video update about Nifty is also released explaining the current market scenario.

Subscribe to the equity report “The Financial Waves short term update” and get insight into where Indian markets are currently placed. Also get 1 hour of FREE training video on Elliott wave for 3 months subscription and also a special video explaining Nifty current position! Visit for more details.

1 comment:

  1. Hi...Vix is calculated as a function of the average of the buy and sell option quotes of the nearest 3 months. Hence as of today, it is calculated by using the buy and sell quotes of option prices of April, may and June 2014. Implied volatility of option prices of may and June have been high from the day they started trading for obvious reasons. (on the contrary option volatilities of april are one of the lowest ever seen.) The spike in the vix is simply due to its method of calculation and has nothing to do with the launch of Vix futures nor the rally of the past 2 months. This same phenomenon was observed prior to the may 2009 elections though there were no vix futures or even the indiavix at that time.(i think indiavix was launched just a couple of months later.) After the current expiry the Indiavix will spike even further due to absorption of July option prices in its calculation. Its simply the effect of the coming event.
    To put it in the words of an option specialist, you are not likely to gain any Theta from shorting options till the 16th of may.