Last week, we had gone in, expecting mean reversion upswings, we were neither clear about how far would the bounce last, how quickly would upswing unfold, given the soft VIX. Now that a four-day range has been broken on the upside, the question is about sustainability, given the cluster of resistances that are about to present themselves shortly ahead on the Nifty.
FII Index futures at record low
Though the proportion of FII’s longs in index futures is near a record low, the number of longs held is on the rise after the September expiry, which saw a massive exit from longs. At 14740, the FIIs index future longs account for just 36% of the longs held just a day prior to expiry. Meanwhile, VIX ended Friday another 2% down at 10.
Broader market cues
With Nifty pushing back above its 50-day SMA, broader market has also established recovery signals. On Friday, 46% of Nifty 500 stocks were seen trading above their respective 10-day SMA, a key benchmark for short term trend. Incidentally, this is the highest number of Nifty 500 constituents to do so since September 22 when the Nifty closed above 25,200, which is over one percent above current Nifty reading.
This gives both direction and an objective for the coming week, while the decline in VIX to near record levels could be taken as a sign that traders may have put behind them the fears surrounding the eight consecutive days of decline that were on from September 18.
Nifty FMCG eyes recovery
The Nifty FMCG index has been undergoing a corrective phase since early September, but recent price action suggests a potential rebound. The index appears to be stabilising near the horizontal support zone around 54,300, with signs of a recovery emerging. On the daily chart, the MACD histogram indicates waning bearish momentum, while a hammer candlestick on the weekly chart reinforces the possibility of a trend reversal.
From a derivatives standpoint, nearly 80% of FMCG stock futures have witnessed long build-up week-over-week. Additionally, around 75% of near out-of-the-money put options have seen short additions—both pointing to a bullish bias in the near term.
On the stock-specific front, major constituents such as Hindustan Unilever, ITC, Nestlé India, Varun Beverages, Britannia, Godrej Consumer Products, Dabur, and United Spirits have formed bullish reversal patterns. These stocks are expected to fuel upward momentum, potentially driving the index toward the 55,870 level in the short run.
Nifty IT firms up ahead of Q2 earnings
The Nifty IT Index has entered a consolidation phase, laying the groundwork for a potential breakout as the Q2 earnings season approaches. With TCS slated to announce results on October 9, the spotlight is set to shift toward IT counters over the coming days.
Technically, momentum indicators are showing signs of stabilization post-correction. The MACD histogram reflects exhaustion at lower levels, and multiple bullish candlestick formations have emerged. A long-legged doji on the weekly chart further supports the case for a reversal.
The derivatives landscape also paints a constructive picture. Around 60% of near-the-money put options have seen short additions, while nearly 50% of call options have experienced long build-up. Furthermore, approximately 70% of IT stock futures have registered long positions on a weekly basis, signaling strengthening bullish sentiment.
Leading the charge are stocks like TCS, Infosys, HCL Technologies, LTIMindtree, and Persistent Systems—all of which have displayed bullish reversal setups. These names are likely to spearhead the recovery, with the index projected to move toward the 34,300–34,800 range in the near term.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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