By Anand James
The pursuit of a Santa rally ended up badly, with Nifty closing the week in deep red ahead of Christmas. There have been significant cuts across the board, especially in the small and mid-caps affecting the risk appetite of retail traders and usually, such a sell-off takes a while before upside attempts gather enough courage. Matter of fact, the losses have been unilateral, with 87% of F&O stocks witnessing long unwinding and 89% of NSE stocks witnessing at least 5% losses from the last week’s high, with hardly any sign of fightback. This signals that fear is at an extreme. Usually, such situations see a rebound, offering a glimmer of hope for a reversal in the last week of the year.
Further, among Nifty December month options, activity in calls far exceeds that of puts. Put OI is concentrated at ATM, and at psychological points of 17500 and 17000, which do not reflect a positioning bias. However, OI and activity along calls are spread across the near OTMs suggesting that traders have been trying to capitalize on the falling momentum, by building shorts. Given the rise in VIX over the week, this is a risky position to be in, as a short covering is highly likely. However, such upside attempts will have a lot to do on the way up. At least, It would require a breach of 18100 before a sense of confidence returns to the market, as 16800 lies in wait deep down.
That strong horizontal support is seen way low at 36600 making the next few days’ trades critical for Bank Nifty
(Anand James, Chief Market Strategist at Geojit Financial Services