By Ruchit Jain
After last week’s expiry, Nifty started last Friday’s session with a lower spread due to negative global indices and we saw short formations at Nifty as well as Bank Nifty. The index continued its correction and before this weekly expiration, market participants were waiting for the outcome of the Fed’s policy. Our markets started on expiry day with a gap to the top, but that was just a formality as the indices started correcting early on and corrected throughout the session to break all the brackets one after the other.
If we look at recent data, then the Nifty and Bank Nifty indices have seen the formation of short positions. In fact, FII started forming short positions when Nifty was around 16700. Prior to expiration, the index was trading around weak support and they had 89% of the positions on the short side. But they were reluctant to hedge their positions, indicating that they expected the markets to correct further. On the other hand, retail clients held 63% of positions on the long side, and after the event it was a tussle to see if FIIs covered their shorts or retailers unwound their longs.
As the strongest hands (FII) have had the upper hand in the markets recently, Nifty broke through the swing low support of 15600 on expiry day which then led to a sell off in the markets and Nifty almost tested the 15300 mark. Now we are entering the pre-expiration week (monthly) and over the last few months the pre-expiration week has always been important and we generally see a lot of volatility this week. The Long Short Ratio in index futures now stands at 11.50% for FIIs, while for retail traders the ratio is 65%. Looking now at this data, we think we could see some sharp moves in the week leading up to expiry, as given the volatility, either retail clients would unwind their positions as the market corrected sharply, or the stronger hands would look to take profits on their shorts. as they are making decent profits and the index is approaching oversold territory.
In the options segment, the 15000 put now has decent open interest which is immediate support. Below that, 14800-14600 will be seen as the next support zone for the week ahead. The general market trend continues to remain negative as there is no change in the data so far. In case there is a short cover seen by the stronger hands, then the index could form a short-term support base around the supports mentioned above.
(Ruchit Jain is the Head of Research at 5paisa.com. Opinions expressed are those of the author. Please consult your financial advisor before investing.)