By Ruchit Jain
Post last week’s expiry, we saw some consolidation for a couple of sessions as the PCR-OI was in oversold territory and markets were reluctant to correct further. In Monday’s session, Nifty surpassed the 16000 mark which led to a short covering in the futures segment and the options writers ran to cover their positions. Nifty tested 16400 mark ahead of the weekly expiry. However, markets were not yet out of the woods and a sharp global sell off led to a huge gap down opening on the weekly expiry day and Nifty again corrected to 15800.
The recent pullback move 15750 to 16400 was mainly due to some short covering and we did not see any significant fresh longs. Now, in Thursday’s correction fresh shorts were added again and the broad market sell-off indicates a strong grip by the bears. FII’s long short ratio has increased marginally to 30 percent from its low of 18 percent which was seen during mid-month. However, the data is still bearish as 70 percent of their positions are still on the short side. Now until any major reversal is seen in global markets, we do not expect any significant short covering from FII’s and they may carry these positions till the coming monthly expiry.
On the flipside, the retail clients still have majority of the positions on the long side with their ‘Long Short Ratio’ around 60 percent. In options segment, 16000 call option for the monthly series have highest open interest (amongst nearby strikes) indicating resistance at this zone. However, majority of these positions were formed on Thursday as the index opened gap down and continued to slide lower. On the flipside, 15000 put option has the highest open interest amongst puts and 15500 strike too has decent positions outstanding. Thus, 15500 would be seen as immediate support for the coming week.
Since the start of the May series, the stronger hands have continuously traded with more short positions and until there’s change in the data, the trend remains bearish. As per the options data, 16000 and 16200 are the immediate resistances now and supports are placed around 15500 and 15200. Traders are advised to continue to trade cautiously and use in between pull backs to form short positions. The view remains bearish till the data remains negative and once we see any change in the data, then only one should look to change the view.
(Ruchit Jain is the Lead – Research at 5paisa.com. The views expressed are the author’s own. Please consult your financial advisor before investing.)