Sensex intra-day range at new low

The intra-day movement for the Sensex, that is, the difference between the day’s high and low, has dipped to historically low levels in recent months. In fact, intra-day volatility was at its lowest in September since the Sensex crossed the 15,000 mark in July 2007.

on Wednesday, the Sensex moved in a narrow band of just 140-odd points, that is, 0.83 per cent on an intra-day basis. Historically, the intra-day movement was at its lowest level on July 9, 2007, at 0.53 per cent, ever since the index broke above the 15,000 mark.

The Sensex witnessed a very narrow (less than a per cent) range on three occasions in September 2009, followed by twice in October, and now once this month.

On a monthly basis, the Sensex’s lowest range was an average of 1.43 in September 2009, followed by 1.71 per cent in October. So far, the average intra-day range this November is 2.09 per cent. All these are significantly low compared to the average daily range of 2.5 per cent so far this year. The average intra-day range for 2008 was around 3.26 per cent.

Interestingly, low intra-day ranges have preceded and then followed a market correction. Assuming that the markets corrected in October and posted low intra-day trading range in September, the current low-volatility phase can be termed consolidation.

One of the low intra-day range for the index was in December 2007, which was followed by a steep correction in January 2008 (down nearly 21 per cent) and then a consolidation phase of two months.

Again, the intra-day range was low in April-May 2008, which was again followed by a steep correction from mid-May till July (down 26 per cent). The consolidation phase continued till September-end.

July 2007 was the only exceptional phase, when the intra-day range for the Sensex was below 1 per cent on five occasions, and the Sensex made a steady climb. Interestingly, July was again followed by a correction in August, and then some consolidation in September before the huge 38 per cent surge in the next three months took the index to its life-time high.

Technically speaking, low intra-day ranges also conincide with Doji formation on the charts. “Doji” means the day’s open and close are near each other and indicates indecisiveness among traders. Hence, it is followed by a correction at most times.

Moses Harding, head, Global Markets Group, IndusInd Bank, expects the market to stay in the consolidation mode with a marginal downward bias (to enjoy time decay) with supports at 16,350/15,750/15,350 (for the Sensex) and 4,850/4,675/4,550 (for the Nifty). However, he has a positive outlook for the markets beyond February-March 2010.