There is a strong inverse co relation between nifty future and the India vix index (volatility index). We have seen that, when the nifty has stated to fall the vix was rising, as most nifty option writers were of a view that there are chances that nifty reverse its move soon, so the volatility was increasing and not decreasing. Volatility has always remained high before the major economic events.
Higher volatility means more fluctuation in prices of underlying (nifty future in this case).
Lower volatility means less fluctuation in prices i.e more clear direction (clear trend on chart).
In the month of February we saw volatility index testing a resistance level, this resistance was supplied by declining trend line. So when this volatility declined, nifty future stated to move higher. Look for the below chart for VIX spot analysis.
Also, we are seeing Nifty future to show major moves in coming days, as volatility has increased sharply today. Open a low cost trading account with us, we promise you of lowest brokerage in India.
Article published on 26.5.14