By Ruchit Jain
Post last week’s expiry, Nifty started last Friday’s session with a gap down due to negative global cues and we witnessed short formations in Nifty as well as Bank Nifty. The index continued its correction and ahead of this weekly expiry, market participants were awaiting for outcome of FED policy. Our markets started expiry day with a gap up, but it was a mere formality as the indices started correcting right from the word go and corrected throughout the session to breach all the supports one after another.
If we look at the recent data, then both Nifty as well as Bank Nifty index have seen formation of short positions. Infact, FII’s started forming short positions when Nifty was around 16700. Ahead of the expiry, the index was trading around swing low support and they had 89 percent of the positions on the short side. But they were reluctant to cover their positions which indicated that they expected markets to correct further. On the other hand, the retail clients had 63 percent of the positions on the long side, and post the event it was a tug-of-war to see whether the FII’s cover their shorts or retail unwind their longs.
Since the stronger hands (FII’s) recent had an upper hand on the markets, Nifty breached the swing low support of 15600 on the expiry day and which then resulted into a sell-off across the markets and Nifty almost tested the 15300 mark. Now, we are entering the pre (monthly) expiry week and in last few months pre-expiry week has always been important and we usually see lot of volatility in this week. The ‘Long Short Ratio’ in the index futures now stands at 11.50 percent for FII’s while for retails traders the ratio is at 65 percent. Now looking at this data, we believe that we could see some sharp moves in the pre expiry week as considering the volatility, either the retail clients would unwind positions as market have been correcting sharply or the stronger hands would look to book profits on their shorts as they are in decent profits and the index is approaching the oversold territory.
In the options segment, 15000 put option now has decent open interest which is the immediate support. Below this, 14800-14600 will be seen as the next support zone for coming week. The broader trend for the market continues to remain negative as there’s no change in data as of now. In case if there’s any short covering seen by the stronger hands, then index could form a short term support base around the above mentioned supports.
(Ruchit Jain is the Lead – Research at 5paisa.com. The views expressed are the author’s own. Please consult your financial advisor before investing.)