India VIX up 40% in April; will Nifty be able to scale the 12,000 level in May?

We have limited upside but there is strong support near 11,550-11,500 levels in case market started heading south.

Nifty has gained a little over 1 percent this month so far while making a lifetime high of 11,856 on April 18. But if experts are to be believed, the psychological level of 12,000 is achievable but there are some hurdles.

The rollover data for May series was over 80 percent — higher than 3-month average and best rollover since September 2016. This suggests most of the long positions were rolled over.

Another factor that will be very prominent in the May series is volatility. India VIX index is up 40 percent so far in April. Historically we have seen that there is a negative correlation between the VIX and the price of the underlying asset.

India VIX is a volatility index based on the Nifty Index Options prices. The index indicates the expected market volatility over the next 30 calendar days.

The index closed at 21.45 on April 26, a multi-year high, amid Lok Sabha election uncertainty, rise in crude oil prices, and weakness in the Indian currency.

“March series’ fabulous rally of 7 percent was followed by a subdued one. In the April series, the fear index (India VIX) surged 40 percent but benchmark index traded in a range of merely 300 points,” Sneha Seth, Derivatives Analyst at Angel Broking told Moneycontrol.

“Rollovers in Nifty stood at 81 percent, highest post-September 2016. Wherever we witnessed some profit booking, stronger hands preferred adding fresh longs. In fact, they rolled their bullish bets in index futures, resulting in their ‘Long Short Ratio’ jumping from 69 percent to 75 percent series-on-series,” she said.

As we enter May, which is expected to remain volatile amid elections, the market setup remains fairly strong. In other words, we have limited upside but there is strong support near 11,550-11,500 levels in case market started heading south.

Recently, 11,550-11,570 has been acting as a sheet anchor for the Nifty on multiple occasions. In case we slip below 11,500 levels, there is a possibility we will head towards 11,400-11,333 levels.

“We are in a similar kind of structure as was recorded in 2014 where the index had started to rally in February and witnessed stellar gains in March as well. But, April was the month of consolidation with wild swings on both sides then a big upside swing was seen in May,” Amit Gupta, Co-Founder, and CEO, TradingBells told Moneycontrol.

“Technically, Nifty is moving in a channel of 11,650-11,850 where it is likely to break out on the upside with a potential target of 12,500,” he said.

The stars are aligned for Nifty to break past 12,000, but there are macro headwinds which could pose as a threat in the way. Election uncertainty will also push back traders in taking aggressive bets.

“In the coming week, investors will keep an eye out for crude oil prices as India is one of the biggest importers of crude oil. The movement of rupee is seen critically as it is now above 70.5 and technicals are further pointing to some upside of 71.7. This could have some serious dent on positive sentiments we have seen in the last few weeks,” Mustafa Nadeem, CEO, Epic Research told Moneycontrol.

“One has to remember that we are entering final few phases of voting and this is the month India will have its new government. This is very important as Volatility is the wind that will be blowing throughout this month. Investors need to be aware of that. At this point of time one must have its portfolio hedged with options,” he said.

Sameet Chavan, Chief Analyst-Technical and Derivatives at Angel Broking is of the view that some macro factors like Brent crude rising beyond its key levels of $73-74 weighed heavily on traders’ sentiment.

“Traders are advised not to take aggressive positions till the time we remain trapped in the mentioned range. At such time, a stock-centric approach becomes the more pragmatic approach,” he said.

Best Share Market News, Click Here To Get More News - Share Market tips, for 2 Days Free Trial give a missed call @9644405057 and Get Share Market Services.