By Ruchit Jain
Domestic stock markets witnessed a sharp rally in the August Futures & Options series and posted gains of over 10 per cent to end above 17500. If we glance at recent historical data after a sharp sell-off in May and June series markets have witnessed some pullback move in the July series which was mainly due to short covering while long formations led to sharp surge in the August series.
Nifty almost tested the 18000 mark in this series but it cooled off from the highs towards the end. In last one week, Nifty corrected sharply from 18000 to 17350 and recovered some of those losses. However, the data has turned negative in this recent correction as long unwinding was seen by the stronger hands which led to the above-mentioned corrective move and in the pullback move from 17350 to 17700, there were no significant longs.
Foreign Institutional Investors (FII) were long in index futures to the tune of around 60 per cent in the third week of the series, but they slowly unwound some of their longs and their ‘Long Short’ ratio ahead of the expiry day was around 45 per cent. Now FIIs have rolled short positions to the September series and are starting the new series with 65 per cent short positions. On the other hand, the retail traders (Client Section) have net long positions with a ratio of 59 per cent.
If we look at the rollover data, the rollover in Nifty is around 82 per cent which is tad higher than the last three months’ average while that in Bank Nifty is at 83 per cent. This indicates that participants have rolled long positions to the September series. However, since the FIIs have more short positions open, it seems that retail participants have rolled longs and if the market breaks the swing low of 17350, then there could be a gush of long unwinding.
After the last two series of up-move, the momentum seems to have reversed from the swing high of 18000. Hence, the upside seems to be very limited in the near term. Traders are advised to be cautious and look in the near term. On the lower side, the swing low of 17350 will be the important support below which the index could test 17100-17000. The banking index has seen a relative outperformance in the recent pullback move, but in case of a market correction this index too could witness a correction towards the support of 38000 and 37650.
(Ruchit Jain is the Lead — Research at 5paisa.com. Views expressed are the author’s own. Please consult your financial advisor before investing.)