After raising their index future long positions to the highest level since May 2025, the buying appears to have stalled, especially soon after the monthly expiry as well as the Fed rate decision. Friday ended with index future short positions rising 5.6%, while longs were cut 1.6%, adding to the overall negative close for the week.
Consequently, longs constitute only 16% of the FII index future portfolio, a sharp decline from 25 levels early in the week. However, it is instructive to note that the 48% reduction in longs on Tuesday from 56,880 contracts could be seen as an expiry event and too large a decline to be attributed to a potential reversal in trend. This encourages us to believe that FIIs might return as buyers soon in the coming week, though the mid-week trading holiday might restrain directional prospects.
Broad market cues
A topping pattern formed by the inability to clear the 26,100 region, for the Nifty, in the last two consecutive weeks had set up conditions for a decline that has pushed Nifty on to a 25,400 trajectory. However, oscillators have come off the tightly wound situations of last week and could allow bulls to regroup without much slippage from 25700.
Meanwhile, only 48% of the Nifty 500 constituents are now trading above their respective 10-day SMA, the lowest such figure since mid-October, while 52% of them are above the 20-day SMA, suggesting that the ongoing decline has brought stocks to key supports, presenting an opportunity for bulls to regroup.
Nifty Auto Index: Resistance Holds, Derivatives Point to Weakness
The Nifty Auto index has been confined to a narrow trading range since September and recently pulled back after testing resistance near the 27,470 mark. This decline coincides with the 61.8% Fibonacci retracement level calculated between the September low and the October high. The appearance of an inverted hammer on Friday suggests a possible short-term reversal. However, the weekly chart presents a more cautious outlook, highlighted by a large bearish candle that indicates the broader trend remains under pressure.
From a derivatives standpoint, there is growing evidence of bearish sentiment. A significant portion of near out-of-the-money and in-the-money call options saw short additions, while stock futures reflected a notable increase in short positions—36% on Friday and 80% on a week-on-week basis. This data suggests that traders are positioning for further downside.
On the stock-specific front, companies such as Maruti, Bajaj Auto, Eicher Motors, TVS Motor, Bosch, Motherson, and Hero MotoCorp may experience short-term pullbacks early next week. Meanwhile, continued weakness in heavyweights like M&M and Tata Motors (TMPV) could intensify selling pressure, potentially dragging the index down toward the 26,430 level as the week progresses.
Nifty Financial Services: Bearish Signals Gain Momentum
The Nifty Financial Services index has recently broken below its consolidation range, reinforcing bearish sentiment. A negative MACD crossover on the daily chart, along with a decisive close below the 20-day moving average at 27,145, points to further downside risk.
Interim support is expected around 27,000, which aligns with the 38.2% Fibonacci retracement level. If this level fails to hold, the index could decline further toward 26,855 and eventually 26,630.
Derivatives data supports this bearish outlook. A majority of stock futures saw short additions both on Friday and over the past week, while a significant portion of near-term call options—both in-the-money and out-of-the-money—also reflected short positioning. This indicates that traders are bracing for continued weakness in the coming sessions.
Among the index heavyweights, HDFC Bank, SBI, ICICI Bank, Axis Bank, and the Bajaj twins are showing signs of deepening pullbacks. Their continued weakness could accelerate the index’s decline toward the projected support zones.
About author
The author is Anand James, Chief Market Strategist at Geojit Investments.
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