Nifty to see sustainable rally above 15850, charts suggest short-term bounce; check what derivative data says

India VIX’s positive divergence is one of the factors supporting a rise early this week. However, lack of major rise in India VIX does not, in its isolation, suggest a complete reversal in trend.

NSE Nifty 50, india VIX
Nifty may see sustainable rallies only above once above 15850, but see potential for upswings early in the week. Image: Reuters

By Anand James

Violent swings marked the closing hours of last week, in line with the drama prevailing all through the week. But it also lent an even poise, giving all types of traders something to look forward to in the coming week. Put options were added the most to 14000 strike, which is also what charts are pointing for the medium term. However, we believe that a short term bounce is due. OI in NSE Nifty 50 is the highest at 15000 and 16000, which is relatively a muted range, when put in the backdrop of last week’s plunge. The skew of PE towards ATM, hints at a bearish exhaustion. Long puts of previous days have been liquidated, but smart money has moved to short PEs at 14500 and 15000. Calls were short the most 16300, 16000 and 15700, in that order, but this is mostly a premium scalping approach, given VIX at relatively low level, when compared to previous peaks this year.

India VIX’s positive divergence is one of the factors supporting a rise early this week. However, lack of major rise in India VIX does not, in its isolation, suggest a complete reversal in trend. It could just be that the present news flow holds no surprise potential to the market and could still allow for continued decline in the medium term. 

However, meanwhile, it could give a wriggling room for a relief rally. FII longs in index futures have remained under 15%, which is a historic low. This cannot be dismissed as a lack of activity by FIIs in the segment, as their shorts are at the highest since 2020. While FIIs’ record 2.11 lakh crore selling of Indian equities that has persisted over eight months can be construed as borne out of need for cash, being starved elsewhere, the massive index future shorts that they have been sitting on, and continue to hold, suggest that they have been equally bearish on Indian equities. While this also sets up conditions for short covering rallies, we feel that its prospects look limited for now. 

With this in perspective, we see sustainable rallies only above once above 15850, but see potential for upswings early in the week, which in turn are likely to face challenges in the 15530-600 region initially.

(Anand James, Chief Market Strategist at Geojit Financial Services. Views expressed are the author’s own.)

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