Bears attack Nifty with volatility spike; watch 22,000 on index for reversal or further free fall

At 14:43 hrs IST, the Sensex was down 920.19 points or 1.25 percent at 72,546.20, and the Nifty was down 308.80 points or 1.38 percent at 21,993.70

Bears dominated the markets today amid heightened volatility, with Nifty dragged down more than 1 percent, and volatility index VIX jumping about 5 percent to near 18. If the VIX index tops 18.5, it could potentially escalate towards the 22-24 levels as volatility rises amid elections and ahead of poll results, said experts.

In the afternoon trade, Nifty was down 262.70 points or 1.18 percent at 22,039.80. About 854 shares advanced, 2364 shares declined, and 87 shares were unchanged.

JM Financial said indicators showed oversold conditions on Nifty, with the index nearing the reversal zone of 22,000-21,800.

JM Financial listed out key parameters to watch:

1. Retail longs at a 1-year high - indicating oversold conditions
2. Nifty PCR stands at 0.67, signalling oversold conditions
3. Nifty RSI nearing support of 41, currently at 43.50
4. India VIX currently at 17.5, if it reaches 24-25 percent, expect short-term bottoming out
5. Technical Reversal Area stands at 22,000-21,800

"India VIX is sustaining above 17 today. If it crosses 18.5, it could move towards 22/24 levels before the event (election results), indicating higher volatility. Simultaneously, Nifty is approaching the crucial support of 21,800-22,000 as a base. Any move below this will indicate further caution," said Soni Patnaik, Assistant Vice President, Derivative Research at JM Financial.

On the other hand, for now, markets seemed to be engulfed with bearish sentiment. "The short-term outlook for Nifty doesn't look optimistic as the VIX has risen consistently for eleven straight sessions. The VIX is at levels last seen fourteen months ago, which is expected as we near the end of the general elections where uncertainty is high,” said Sheersham Gupta, Director, and Senior Technical Analyst at Rupeezy.

“Additionally, continuous FII selling and a hawkish stance from the Fed are further exacerbating the market's decline," he said.

Avdhut Bagkar, Derivatives and Technical Analyst at StoxBox, emphasized that in the last 15 sessions, the India VIX has doubled, signifying very strong bearishness in the market. "While it is difficult to gauge the high/top or low/down level of the fear index, the price action clearly denotes bearishness. Going ahead, if the India VIX fails to cool off to below 16, we could see more selling pressure in the market," said Bagkar.

Also read: F&O Manual| Indices trade negative; Nifty breaches support level of 22,200

As for Nifty 50, Bagkar said that a breach of 22,000 on the way down may lead the index to slip to the previous lows of 22,777. " The index must exceed this mark for consecutive sessions to attract bulls for positive sentiment," he said.

Advice to traders:

Gupta of Rupeezy advises traders to reduce positions until the exit poll for the general elections is out and some clarity emerges. As of now, 22,000 should support Nifty as it also lies at its 50-DMA. If broken, Nifty can see levels of 21,750. Bullishness will return to the market once Nifty crosses its 20-DMA on the upside.

Under such conditions, Bagkar also advises aggressive traders to avoid taking over-leveraged positions and instead seek hedging strategies.

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