By Anand James
The day-long fall on Friday, having come at the end of a relentless streak of upsides, amidst overbought conditions, that have lasted over a month, the bears appear to be sinking their claws in, and the general feeling is that this is the beginning of the end of the uptrend. For the near term. Let us investigate a bit deeper and see how far it is true. FIIs boosted their short positions in the index future segment by 15.5%, while cutting down on their long positions by 3.8%. But at 48.4%, the long positions in their index future portfolio are at no extremes, and therefore inconclusive. However, they have more than doubled their positions in index call shorts.
Also read: Will bears drag Nifty below 17500 or is pullback on cards? 5 things to know before opening bell
Verdict: With just a week to expire, the relatively neutral position along index futures, suggest that massive short build up along calls is less of a directional play, but more of a response to sudden rise in VIX.
Over 91% of Bank Nifty stocks slipped below Thursday’s lows, as opposed to 53% from the NSE 500 stocks falling below the Thursday lows, an indicator towards shift in near term trend. Meanwhile, 12% and 14% of the stocks from Nifty and NSE 500, respectively, slipped below their respective 5 day lows. Nifty 50 has been overbought for a while, but on Friday, after the fall, only 32% of its stocks show a +70 level for 14 day RSI. Only 21% are at similar levels among NSE 500 stocks, while only 13% of small caps have an RSI above70 and more than 20% of small caps have an RSI below 50.
Verdict: A correction has been due, certainly, given the sustained level of overbought conditions, but the majority have come off such levels, ruling out a collapse.
Also Read: Buy these two stocks for gains while Nifty forms bearish pattern on daily charts, support at 17500
Technical Outlook
We had indicated last week about how standard deviation studies point to large corrections, but were hopeful of extension in uptrend towards 18100-18200. A shooting star in weekly, and a bearish engulfing in daily chart hints that this trajectory has come to an end. Traders will stare at the prospects of 17000 again, for the August expiry, but will fancy slim chances of recovery, should Monday volatility fail to penetrate 17600 and pull back above 17720 which meets the internal trendline.
(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)
