India VIX index! Nifty continues to move in corrective non trending fashion!

The following article was published in "The Financial Waves" today morning report by Waves Strategy Advisors (www.wavesstrategy.com)

Bottom Line: Nifty continues to do what it has done in most of 2012 i.e. moving in corrective non trending pattern. 

Nifty Daily chart: 

 Nifty 60 mins chart:

NSE VIX index:

Wave Analysis:

We mentioned in previous update, “The internal wave counts for this minor wave 5 is very tricky and so we will wait for prices to either break below 5840 or close above 5950 to provide short term direction. Only a move above 5980 will indicate that wave 5 is extending whereas a move below 5840 will open possibilities of 5790. A move below 5700 will indicate that a major top is in place at current highs. In short, expect range bound movement to continue unless we see a clear directional breakout which is expected this week. Please maintain strict stop loss and follow money management prudently in case there are any sharp reversals.”

Nifty had another range bound movement. Prices opened near 5917 and moved between 5925 and 5874 with no trending move. It just oscillated around 5900 levels throughout the day.

Smallcap and Midcap sectors managed to close marginally positive and the overall breadth was equally divided between advancing and declining stocks.

We are showing NSE Volatility index (VIX) that represents markets expectation of volatility over next 30 days. In simple terms this index helps to understand how much prices are deviating from the mean. Normally, volatility reduces with increase in prices as prices tend to move along with mean whereas during down moves which are steeper prices tend to move away from means. However this condition is not necessary and when breakout happens after a range bound movement volatility can increase along with increase in prices as well. Case in point is Indian VIX recorded its lowest value of 12.87 on 22^nd October 2012 since inception in 2008. Prices have not given any strong trending moves and this index itself suggests that. During the entire period of 2012 VIX has been constantly moving down. Such low VIX values are not conducive for Option traders and also indicate no strong trends in either of the directions.

For now pickup in VIX along with breakout in Nifty either above 5980 or below 5840 will provide confirmation of trending move over short term. Markets cannot continue to move at such low VIX values for extended period of time and 2013 will hopefully provide better trending moves as compared to 2011 & 2012.

In short, wait for Nifty to break below 5840 or above 5980 to give a clear directional move. Wave counts over short term continue to be everyone’s guess and we will need more price movement to clarify it over short term.