CHART 1: A Short Term Bounce in VIX not good
Even as Nifty has broken recent highs and ended near its 200 DMA, a similar observation has been made for India VIX which gapped up on Friday, 21/12/2018, and made a deep green candle above its 200 DMA. The near term outlook for markets may be vitiated by this occurence if Vix continues to gain near term – which it is likely to given the depth of the candle.
CHART 2: INDIA VIX MACD WEAKENING ON MONTHLY CHARTS : SUGGESTS STRONG UPTREND STILL IN PLACE
On Monthly charts, the structure suggests that all closes above 9200 will remain supportive of the long term uptrend!
Scary but even if Nifty falls to 9200, ,it will still remain in long term bull territory.
Interestingly, the India VIX Monthly charts suggest that one should not give up any hope on Nifty UNLESS VIX rises above 20.Notice how VIX, barring elections time, tends to stop its rise at the 100 Month Moving Average which has supported higher highs.
As of now, it looks like the longer term VIX trend is on the downtrend while on shorter timeframes it is on an uptrend – implying that we may not go all the way to test the Nifty supports but possibly find support midway – as excessive weakness may be resisted by the VIX downtrend.
Around elections time, the tendency of VIX to cross beyond 20 is very high so irrespective of the situation before that, it may be prudent to exit markets until VIX climbs back below 20.