Market end volatile week lower; Outlook remains cautious
Nifty for the week remained highly volatile and rebounded after moving below short term moving average of 50 DMA and finally closed with losses of less than 0.59% to 15,763 levels. The FIIs have turned aggressive sellers for the month of July by selling more Rs 25,000 crore in the cash market which remains a major cause of worry for Indian markets going forward. On the technical front, the Nifty which was oscillating in rising wedge pattern has once again closed below the support line and is therefore likely to see further selling towards 15,100 based on pattern projection.
The open interest (OI) analysis of the entire market has also thrown up a major warning signal with data indicating clear euphoria and correction of a larger amplitude remains on the cards. The data suggest that the retail segment has taken excessive leverage without adequate hedges and may trigger serious unwinding in the markets. Retail traders hold 9.8 lakh contracts of long positions and have short sold 3.8 lakh of put option contract, thus taking the most risky bet. On the other hand, DIIs have accumulated aggressive short positions accounting to 58% of entire stock futures available in the system. This position taken by DII is quiet dangerous as it suggests that they feel that the upside for market is exhausted and the market is positioned for more than 20% fall in the near term. FIIs who are continuous seller in cash market, have hedge their positions with long contracts and short contracts matching each other i.e. Long Index Future + Long Stock Future + Long Index Call = Long Index Put + Short Stock Call.
Open Interest Analysis (figures in contracts outstanding)
Author: Nisha Harchekar – M.M.S (Finance) – 16 yrs+ experience as Equity Research Analyst
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