Nifty may face hurdle in 11,350-11,600 zone, volatility likely to rise: YES Securities

Pritesh Mehta

After days of narrow range & indecisive candles on the headline index, Nifty gave a first sign of feebleness in Friday's session as it fell by over 100 points mainly led by fall in banks & financials and profit booking in index biggies. However, a confirmation of a close below three-digit Gann number of 11,1(00) would result in shift in orbit on the downside.

For most part of the week, Nifty hovered around the multiple supply points which resulted in sector rotation. Post over 50 percent rally since March low, Nifty had been grinding higher (as seen in this week's trade) accompanied with low volatility & sector rotation. We believe, index is now staring at strong confluence of hurdle (between 11,350 & 11,600 zone), so smooth sailing ride is bound to get rocky.

Weekly chart of Nifty & our studies indicates that the movement going forward is going to provide whipsaw moves. After multi-weeks' rally, Nifty is currently staring at confluence of hurdle. Recently, Nifty achieved its price equality projection around 11,200, 78.6 percent retracement level, presence of multiple Gann numbers and peak of Tall Red bar of March 2020 are expected to prove as a challenge from hereon.

BankNifty & Financials were the architect of Friday's fall as it corrected by over 2 percent. Ratio of BankNifty/Nifty yet again shows a dull picture on broader charts as it failed to yet again provide a breakthrough above 1.97 mark. Ratio attempted to break above the downsloping trendline hurdle but again the recent revival seen from August 6th proved to be short-lived, suggesting underperformance of banks going ahead. Fall below 1.93 would result in a double bottom sell pattern on point & figure (P&F) ratio chart (0.1% *3). On standalone chart, BankNifty formed a large bearish candle in Friday's session with a loss of 2.5 percent, ensuring an immediate hurdle of three-digit Gann number of 225(00).

As headline index was toiling hard to sustain on the upside, a different story was unfolding in broader markets. As per our customised breadth index, Nifty Midcap 100 index' breadth was in a neutral zone around 40 percent in first week of August, which improved in the following days. With breadth hovering around the top, some cool-off in breadth is possible in coming sessions. On P&F chart (0.25%* 3), it is approaching 45-degree downward sloping trendline, which indicates a plausible consolidation on this index following recent rally.

Pharma index was the biggest mover in Friday's session, it again shows that how uptrending indices tend to bounce back sharply from support zone. Nifty Pharma/Nifty ratio (0.5%*3) chart shows a reversal from point of polarity zone and it is a probable bullish ABC breakout candidate, which implies that on confirmation of the breakout; Pharma index is likely to outperform benchmark Nifty.

The law of cause and effect entails that price volatility usually picks up following a phase of lower price volatility. In Friday's session, India VIX gained over 5 percent to settle above 21.50. With Nifty facing multiple supply zone and Friday's move below midpoint of current three-digit Gann channel, volatility is likely to be the new norm going forward.

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