The sustained upswing in equity markets for the fifth consecutive day on Tuesday may not last long going by trends in the futures market. The 30-share Sensex of the BSE rose 293.44 points, or 2.84%, to close at 10,631.12 points. The S&P CNX Nifty of the NSE gained 98.25 points, or 3.2%, to close at 3,142.10 points. Interest rate-sensitive companies saw sustained positive movement. In a week, the Sensex has gained 18.01%.

But this rise is a result of investors building positions in the futures market, known as ?open interest?, on expectations that markets would dip further. Open interest, technically, is the total number of outstanding contracts that are held by market participants at the end of the day. It can also be defined as the total number of futures contracts or option contracts that have not yet been exercised (squared off), expired or fulfilled by delivery.

Open interest has deepened through October. Higher the positions, lower the Nifty swing. But most of these positions have been liquidated in the past few days. To do that, bear operators have had to buy shares from spot markets to cover their positions, a process known as ?short covering?.

On Monday and Tuesday, open interest was at 3.1-crore levels, of which only a small number was carried forward. Of the 28.5-lakh shares added to open interest on Monday, only 6.5 lakh shares were carried forward. Derivative analyst Arup Misra at Elara Capital is convinced this is a bear market rally. ?There is not much cash buying and there is no strength in the rally.? Upswings with low volumes also indicate that the rally is weak.

As a result, key index heavyweights such as RIL, SBI, Bharti, L&T and DLF were up on short covering rather than a build-up of long positions. The fact that the put-call ratio?the amount of sell option contracts against buy contracts?is around 1.10 indicates that more people were taking positions on expectations that the market would correct. And this happened since October 31. Before that, the put-call ratio was below 1. ?Also, a lot of arbitrage positions in the short end of the market were unwound,? says TS Harihar, senior VP, ICICI Securities.

However, he does not see a major sell-off at the moment. There is some section holding on to cash positions and this is a positive. Plus some amount of FII net purchases helps, he said. ?There will definitely be a correction, and the rebound from this correction will tell us if we have turned around or not,? Harihar says.

In the correction, if the Sensex closes above the previous low and then rallies to close over the 10,500-mark, there could be what technical analysts call a ?higher bottom and higher top? formation, signalling a turnaround.

With the manufacturing sector in the US turning up weak numbers, Asian markets could weaken in the latter half of the week. That would be a dampener for India, too, despite optimism in the market stemming from the fact that FIIs have started net buying again.

According to Sebi, FIIs were net purchasers in the Indian equity markets for the third consecutive day. On Tuesday, they were net purchasers to the extent of Rs 761.70 crore, or $188.80 million. On Monday, they were net purchasers of Rs 1183.20 crore, or $293.30 million.