There have been certain changes in the indian markets over the past 2-3 months. Primarily these changes being
1) Very very low volatility: I dont remember the last time when we had volatility in the region of 15. (Anything above 20 is considered as volatile). Hence I dont remember last when Nifty did not open a gap up or down and moved in a less than 1% range. This has been happening over the past 2 months and a virtual grind up for the market, which has been very painful for the traders.
2) Options Play: Options trading has hit an unprecedented mark of 1Lakh Cr. This high options volume has never been seen in the indian market. This again primarily is due to the low volatility and hence the options are priced so cheap that people are preferring to play with options rather than index futures.
3) Negative divergence: There have been 2 negative divergences on the MACD charts and both of them have been fake. I cant remember in the history of the markets wherein 2 negative divergences have appeared on the MACD charts and both turned out to be fake signals.
Where from here, is a very very tricky question. The charts are becoming increasingly tricky to read and the markets are just not falling. Something has to give way, the volatility has to increase, and if it does the markets would break out in either direction. The risk reward currently is stacked in favour of the decline, wherein a 10% kind of correction cannot be ruled out, however the tricky part is that correction of even 1% is being bought into. I am away from the Nifty since currently it is virtually impossible to trade it profitably.
