Volatility in Nifty 50 may hamper aggressive buying this week

Last week, I wrote that the markets would be volatile but optimistic. That proved prescient despite the slam-dunk trading session on Friday. What triggered the fall on Friday was the combination of political turmoil and the possibility of Russia returning to the US Dollar Standard and working with United States to develop natural resources, particularly energy. Emerging markets sold off as investors expected a flight of capital, with money moving to America amid prospects of better corporate earnings if conflicts ended.

From a rational trader's point of view, this opens a back door to dichotomy. On the one hand, cessation of hostilities means better prospects for global trade. On the other, a flight of capital towards higher returns perceived as being in the West. That means uncertainty, volatility and sporadic price moves will continue. Markets will be news-driven and edgy at least initially during the week. Bullion may witness some profit-taking as safe-haven buying may taper marginally.

Given the extreme volatility in silver, it may make sense to reduce exposure to silver in favour of gold. Your overall exposure to bullion should remain in place, just move a few pieces on the chessboard. Gold has not appreciated as much as silver and should hypothetically not fall as much either. While that does not mean it will not fall, the decline may be relatively smaller and slower. I still believe the absolute long-term prospects for bullion remain positive, and patient delivery-based investors will do well to hold on to their holdings. Avoid leveraging (buying with borrowed money) at all costs. Buy only as much as your pocket affords and avoid panic sell-offs triggered by margin calls.

Oil and gas remain under pressure and are selling on rallies. I continue to hold my opinion that the energy markets are adequately supplied. With monthly expiry approaching in oil and gas, volatility may rise. The view remains that of sell on rallies for the high-risk traders.

Industrial metals cracked under profit-taking as unsubstantiated reports of a possible rollback of metal tariffs triggered a mini sell-off. That may trigger some profit-taking on advances in the stock prices of metal mining companies.

This week, public sector undertakings are likely to remain the top sector in terms of trader action, as the government is taking concerted steps to push for strategic divestment. Traders sensing an opportunity are second-guessing which firms may be lined up and are taking exposure accordingly. This can result in larger-than-normal price ranges. Savvy traders with risk-mitigation capabilities can take advantage of trading opportunities in both directions.

Fixed-income investors should continue to keep their powder dry and await better opportunities, as 10-year bond yields suggest. Continue to trade light and maintain stop losses diligently. Tail risk hedges are a necessary part of your trading blueprint.

A tutorial video on tail risk (Hacienda) hedges is here:

Rearview Mirror

Let us assess what happened last week so we can gauge what to expect in the coming week.

The rally was led by the Bank Nifty, while the broader Nifty 50 fell. The dollar index (DXY) declined, which propped up emerging-market indices (including India). Safe-haven buying in bullion eased on the prospects of a Russia-US deal.

Oil and gas prices remained under pressure as weather-related buying pressure subsided. The rupee strengthened mildly against the dollar, boosting sentiment. The Indian 10-year bond yield fell, boosting sentiment for the Bank Nifty.

The National Stock Exchange (NSE) lost 0.4% in market capitalisation, indicating nervousness was broad-based. Market-wide position limits rose routinely. US headline indices fell broadly, providing headwinds for our markets.

Retail risk appetite: I use a simple yet highly accurate yardstick to measure the conviction levels of retail traders: Where are they deploying their money? I measure the percentage of turnover contributed by the lower- and higher-risk instruments.

If they trade more of futures, which require sizeable capital, their risk appetite is higher. In the futures space, index futures are less volatile than stock futures. A higher footprint in stock futures shows higher aggression levels. Ditto for stock and index options.

Last week, this is what their footprint looked like (the numbers are the average of all trading days of the week):

Turnover in the high-risk, high-volatility futures segment was almost unchanged. In the options segment, turnover contribution was higher in the more volatile options segment.

Overall risk sentiments were optimistic but subdued. It will take more aggressive bullish participation to push markets higher.

Matryoshka analysis

Let us peel layer after layer of statistical data to arrive at the core message of the markets.

The first chart I share is the NSE advance-decline ratio. After the price itself, this indicator is the fastest (leading) indicator of which way the winds are blowing. This simple yet accurate indicator computes the ratio of rising to falling stocks. As long as gaining stocks outnumber the losers, the bulls are dominant. This metric is a gauge of the risk appetite of one marshmallow traders. These are pure intraday traders.

The Nifty 50 clocked losses last week. The advance-decline ratio reflected this nervousness by falling to 1.42 (prior week 1.86). That means there were 142 gainers for every 100 losers in the market. Bullish sentiments were milder but present. As long as this ratio remains above 1.0 with rising prices, bulls will retain an upper hand.

A tutorial video on the Marshmallow theory in trading is here:

The second chart I share is the market-wide position limits. This measures the amount of exposure utilised by traders in the F&O space as a component of the total exposure allowed by the regulator. This metric gauges the risk appetite of two marshmallow traders. These are deep-pocketed, high-conviction traders who roll over their trades to the next session(s).

The post-expiry reading in the MWPL is higher than the peak reached in the December 2025 derivatives series. While that indicates a higher risk appetite among swing traders, it also brings higher volatility as larger positions are churned with the news flow. Keep watching MWPL daily for directional guidance.

A dedicated tutorial video on how to interpret MWPL data in more ways than one is available here:

The third chart I share is my in-house indicator ‘impetus.’ It measures the force in any price move. Both indices moved in opposite directions last week, but their impetus readings were lower. That indicates a lower momentum across the board. Ideally, rallies should be accompanied by higher impetus readings.

The final chart I share is my in-house indicator ‘LWTD.’ It computes lift, weight, thrust and drag encountered by any security. These are four forces any powered aircraft faces in flight, so applying them to traded securities helps a trader estimate prevailing sentiment.

The Nifty clocked losses last week, and the LWTD moved in lock step as the reading fell to -0.20 (prior week 0.07). That indicates fresh buying support may be patchy and mild. Short covering can occur, triggering short-term rallies or cushioning declines. We need more aggressive fresh buying to propel markets higher.

A tutorial video on interpreting the LWTD indicator is here:

Nifty’s verdict

Last week’s candlestick chart shows a bearish candle as follow-up buying was missing, especially in the fag end of the week. The price has closed at the 25-week moving average, which is equivalent to the 6-month average holding period on cost for a retail investor. The medium-term outlook will remain positive as long as the price stays above this average.

Last week, I suggested that a sustainable rally would be possible only above the 26,400 level on a continuous closing basis. That proved elusive, and the bulls lost momentum. This resistance remains the threshold to watch before pronouncing a bullish verdict.

On the flip side, trading continuously below the weekly low of 25,444 can signal further declines.

Your call to action

Sustained trade above the 26,400 level indicates the possibility of a fresh rally. Only if this level is overcome confidently a new high can occur.

Last week, I estimated ranges of 61,500–58,750 and 26,300–25,100 for the Bank Nifty and Nifty, respectively. Both Sensex and Nifty traded within their specified parameters. This week, I estimate ranges of 61,525–58,825 and 26,075–24,875 for the Bank Nifty and Nifty, respectively.

Trade light with strict stop losses. Avoid trading counters with spreads wider than six ticks. Have a profitable week.

Vijay L. Bhambwani is the CEO of www.Bsplindia.com, a proprietary trading firm. He tweets at @vijaybhambwani.