By Ruchit Jain
Post the recent pullback move, our markets witnessed a correction of over 500 points in Nifty from its recent swing high of 16790. Nifty breached the 16300 mark on the weekly expiry day, but again it managed to pull back higher and end a tad below 16500. We witnessed some fresh short additions in the index in this recent correction. The Bank Nifty index too has seen a similar correction in the last few days and has ended just above the 35000 mark.
Stock markets have been witnessing a lot of uncertainty as there have been stock-specific movements where some sectors such as Oil & Gas are witnessing positive movement due to a rise in Crude Oil prices while some sectors have witnessed short formations and have seen underperformance. The index too witnessed some short formations but majorly the FIIs have unwound longs and have formed some more short positions. Their ‘Long Short’ Ratio has now fallen to below 25 per cent, which means that more than 75 per cent of their positions in the index futures are on the short side. Recently, our markets have seen a corrective phase when the stronger hands have formed short positions and hence, this data does not bode well for the bulls. In the options segment, the coming weekly series has an open interest concentration at 16500 and 16600 strikes while the 16200 put option has decent open interest outstanding. This data indicates that 16500-16600 will be seen as an immediate resistance zone on pullback moves while 16200 will be seen as immediate support. Now with 75 per cent of positions of FIIs on the short side in index futures, a lot will depend on whether they cover their short positions which will only be a trigger to drive the markets higher. Until we see any such short-covering by them, the trend will remain negative and hence, traders should look to lighten up longs on pullback moves.
For the coming weekly expiry, the supports for Nifty are placed around 16200 followed by 16000 while resistance is seen around 16500-16600 range followed by 17000. Traders are advised to stay cautious on pullbacks and trade with a stock-specific approach in the near term.
(Ruchit Jain is a Lead Research at 5paisa.com. Views expressed are the author’s own. Please consult your financial advisor before investing.)