India VIX, also known as the ‘fear gauge’, has been on a declining trajectory since May, touching the lower levels (which we saw during early 2020), indicating that market participants have turned complacent. And when market participants become overconfident & complacent, it’s a big problem as they are more vulnerable to surprises.
This is exactly what we saw on D-Street on Monday, a gap-down opening as market participants were in a panic mood and started selling. As a result, Nifty witnessed its one of the nastiest falls in recent times. Moreover, India VIX witnessed a sharp spike.
What caused a gap-down opening on Monday? Firstly, it was fragile global cues, and secondly, prominent private sector bank. HDFC Bank reported its quarterly number on weakened fanned flames of asset quality. As a result, Bank Nifty was down by 1.88 per cent. Furthermore, HDFC twins combinedly contributed 76 points to Nifty’s fall.
The price action of the day formed a Doji-like candlestick pattern with a gap-down opening. Nifty opened below the 20-DMA and during the day, it made an attempt to reclaim the 20-DMA but failed to sustain above the 20-DMA as selling pressure intensified. As Nifty slipped below the 20-DMA on a closing basis, the short-term trend has tilted in favour of bears. Having said that, Nifty is still trading within the broad range in which it has been trading for the past one month.
Going ahead, the zone of 15,600-15,650 is likely to act as strong support. Hence, as long Nifty does not close below 15,600-15,650, bulls would stand a chance to bounce back. On the upside, the 20-DMA is likely to act as immediate resistance.